Week 6 and 7 consumer

Question 1

indifference curves

Answer 1

1. the further away from origin the higher the level of satisfaction
2. cannot cross-implies contradiction
   slope down

Question 2

can indifference curves be thick

Answer 2

contradicts the more is better theory

Question 3

marginal rate of substitution

Answer 3

max amount of one good consumer sacrifices to obtain one more unit

Question 4

utility

Answer 4

set of numerical goods that reflect the relative ranking of various bundles of goods

Question 5

ordinal preference

Answer 5

if we only know consumers relative ranking of bundles

Question 6

cardinal preference

Answer 6

absolute comparison between ranks

Question 7

indifference curve

Answer 7

consists of all those bundles that correspond to a particular level of utility

Question 7

indifference curve

Answer 7

consists of all those bundles that correspond to a particular level of utility

Question 8

marginal level of utility

Answer 8

extra level of utility a consumer gets from consuming one more extra unit of good

Question 9

budget constraint

Answer 9

consumers total budget plus the prices of goods

Question 10

budget line

Answer 10

bundles of goods that can be bought if the entire budget is spent on these goods at given prices

Question 11

opportunity set

Answer 11

all bundles a consumer can buy including all the bundles inside budget constraint

Question 12

marginal rate of transformation

Answer 12

slope of budget constrain
the trade off the market imposes on the consumer in terms of the amount of one good the consumer must give up on the obtain one more unit of the other good

Question 13

are you better off if income doubles or if the prices fall by half

Answer 13

budget line and opportunity set are the same with each change

Question 14

constrained consumer choice

Answer 14

given information on Lisas preferences and how much she can spent determine her optimal bundle

Question 15

where is the highest level of satisfaction

Answer 15

at point of tangency between budget constrain and utility

Question 16

corner solution

Answer 16

if a consumer buys in extremes, and buys all of one category of goods and none of the other then mrs is not necessarily equal to -pz/pb

Question 17

endowment effect

Answer 17

consumers plays higher value on goods when they own them then when they’re considering of buying them

Question 18

bounded rationality

Answer 18

people have limited capacity to anticipate, solve and enumerate all options