Topic 7 - Choice Flashcards
1
Q
Optimal choice
A
Tangency yields best bundle.
2
Q
Kinky tastes
A
No tangency, curves do not cross.
3
Q
Boundary optimum
A
Tangency condition holds for interior optimum.
4
Q
When more than one tangency?
A
Not every point is optimal. Highest IC is optimal. Tangency is not necessarily the optimal
5
Q
Perfect substitutes
A
If the goods are perfect substitutes the optimal point will often be on the boundary.
6
Q
Perfect compliments
A
Consumer buys equal amounts of both goods regardless of price. Optimal choice will be at the corner point of each IC.
7
Q
Discrete goods
A
A good only available in integer units. e.g. cars (can’t buy half a car).
8
Q
Concave preferences
A
Optimal choice is the boundary point not the interior tangency point.
9
Q
A
