Utility

Question 1

Higher levels of utility

Answer 1

Equals higher indifference curve contour lines

slope of indifference curves show how a person is willing to trade one good for another

Question 2

MRS (marginal rate substitution)

Answer 2

Is the rate at which an individual is willing to decrease consumption of one good to consume more of another

it is the absolute value of the state of indifference curve

Question 3

Indifference curve map

Answer 3

A contour map that shows utility and individual obtains from all possible consumption options

U1= combinations of goods H and S that provide some level of utility to an individual the slope shows the trades an individual will freely make 
I.e. A--> B if both points a and B are on U1
Point E (above line U1) is preferred to A and B on U1

Question 4

Budget constraint

Answer 4

The limit that encompasses on the combination of goods that an individual can buy

I = PX.X + PY.Y
Utility max: MRS= PX/PY

Question 5

When budget constraint intersects indifference curve (I=U1)

Answer 5

At X, Y all available funds will be spent and MRS will be equal to the rate at which goods can be traded in the market (Px/Py)

Question 6

Composite goods

Answer 6

Combining expenditures on several different goods whose relative prices don’t change into a single good for convenience in analysis

Question 7

Utility

Answer 7

The satisfaction people derive from the economic activity

aim = maximisation