Topic 01 Consumers

Question 1

A>_B

Answer 1

A is at least as good as B

Question 2

A~B

Answer 2

A equals B

Question 3

A>B

Answer 3

A is better

Question 4

two types of rational

Answer 4

complete- consumers can compare easily (A>B or B>A)
transitive-obvious by deduction, if A is better than B and B is better than C then A is better than C

Question 5

rational

Answer 5

able to make clear decisions

Question 6

just because consumers are rational, doesn’t mean their behaviour is conscious. what does this mean?

Answer 6

actions speak louder than words, behaviour may be different

Question 7

just because consumers are rational, doesn’t mean their behaviour is typical. what does this mean?

Answer 7

abnormal preferences

Question 8

just because consumers are rational, doesn’t mean their behaviour is objectively correct. what does this mean?

Answer 8

may be a completely wrong statement but they still believe it (pigs flying etc)

Question 9

just because consumers are rational, doesn’t mean their behaviour is egoistic. what does this mean?

Answer 9

may consider others in the choice

Question 10

monotonicity

Answer 10

more of a good is better

Question 11

utility

Answer 11

numerical index associated with each bundle that tells you which bundle is better. tells us the utility of any given allocation or outcome

Question 12

types of utility

Answer 12

ordinal and cardinal

Question 13

ordinal utility

Answer 13

ranking but not intensity of their preference, which one they like more but not by how much

Question 14

cardinal utility

Answer 14

measures intensity of the like but it isn’t transferable ( unit of utility can be costlessly transferred to another person)

Question 15

assumptions of the indifference curves

Answer 15

downward sloping (or monotonicity is violated)
they aren’t thick lines
different curves can’t cross
for any utility bundle there’s an indifference curve going through it
if they have equivalent utility, the bundles lie on the same indifference curve

Question 16

marginal rate of substitution

Answer 16

change in y variable/ change in x variable or -marginal utility of x/marginal utility of y
tells us how much of y is given up to gain x

Question 17

marginal utility

Answer 17

extra utility gained by an extra unit of good

Question 18

slope/gradient of budget line

Answer 18

-Px/Py

Question 19

budget line equation

Answer 19

f=Y/Py-(Px/Py)X

Question 20

what does engel curve look like

Answer 20

refer to figure 1.8, connects the two points of each bundle to form a straight line

Question 21

income effect

Answer 21

change in quantity demanded caused by a change in income/wealth prices stay constant

Question 22

substitution effect

Answer 22

change in quantity demanded caused by change of price keeping real income/wealth constant

Question 23

when income changes, does it effect income or substitution effect?

Answer 23

income effect

Question 24

when price changes, does it effect income or substitution effect?

Answer 24

both, the consumer becomes “richer” as they spend less

Question 25

normal good

Answer 25

as income rises demand also rises

Question 26

inferior good

Answer 26

as income rises demand falls

Question 27

complementary good

Answer 27

if the price of one good falls, the demand for both goods rise

Question 28

substitute good

Answer 28

if the price of good A falls, more of good A is demanded

Question 29

giffen good

Answer 29

as price increases demand increases

Question 30

numeraire good

Answer 30

goods price is fixed at 1

Question 31

jevons paradox

Answer 31

increase in efficiency will increase resource consumption rather than decrease