Utility functions Flashcards
What is a utility function
A utility function assigns a utility level (numerical value) to any possible bundle of goods
What is the point of a utility function
It allows for economists to compare bundles of goods
What is an ordinal utility function
- Only describes rankings of bundles
- If U(x) = 2 x U(y), U(x) is not twice as preferred as U(y), it is merely ranked higher in preference
What is a cardinal utility function
It assigns exact utility levels to bundles (essentially the opposite of ordinal)
Are interpersonal comparisons of utility possible?
No, people cannot accurate use cardinal utility functions
Along the indifference curve, what is special about the utility
It is constant
What is the slope of an indifference curve equal to
The negative of the ratio of marginal utilities
What is unique about indifference curves of perfect substitutes
They are straight lines
What is unique about perfect complements
The indifference ‘curves’ are perpendicular
