Term
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Definition
| Maximum combination of 2 goods a consumer can buy, given thier income and price of the 2 goods |
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Term
| What is a shift in the budget line? |
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Definition
Changes in INCOME will SHIFT the budget line.
(Increase RIGHT; Decrease LEFT) |
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Term
| What causes a PIVOT in budget line? |
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Definition
Changes in PRICE will pivot budget line.
(INCREASE Px = LEFT; DECREASE Px = RIGHT) |
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Term
| What is indifference curve properties? |
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Definition
- Every possible combination of goods is on an indifference curve
- Indifference curves are negatively sloped (you must give up one to gain the other)
- Indifference curves further from origin represent higher levels of total satisfaction (always prefer more to less)
- Indifference curves never intersect
- Indifference curves are convex (bowed into origin)
- Slope of indifference curve = -MUx/MUy
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Term
| What is the eqi-marginal principle? |
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Definition
| the last dollar spent on each good must yield the same gain in satisfaction as the last dollar spent on any other good |
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Term
| What are the good defintions for INCOME (Ey)? |
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Definition
>0 NORMAL good
<0 INFERIOR good
+>1 SUPERIOR good |
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Term
| What is UTILITY satisfaction? |
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Definition
derived when consuming the same thing
(only order/ can't compare with people) |
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Term
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Definition
| what happens when you take the next step |
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Term
| What is MARGINAL UTILITY? |
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Definition
| gain satisfaction as you consume the next unit |
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Term
| When TOTAL UTILITY(TU) is MAX = ____? |
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Definition
| Marginal Utility (MU) = 0 |
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Term
| How many combinations of of 2 goods are on a I.C? |
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Definition
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Term
| At every point on a I.C., the level of _____ is the _____? |
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Definition
| At every point on a I.C., the level of SATISFACTION is the SAME. |
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Term
| I.C. have a ____ slope, must ___ 1 good to ____ another? |
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Definition
| I.C. have a NEGATIVE slope, must LOSE 1 good to GAIN another? |
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Term
| What is the slope of a I.C.? |
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Definition
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Term
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Definition
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Term
| I.C. curves ____ from the ____ represent ____ levels of _____ satisfaction? |
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Definition
| I.C. curves FURTHER from the ORIGIN represent HIGHER levels of TOTAL satisfaction? |
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Term
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Definition
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Term
| Law of diminishing marginal utility |
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Definition
| the gain in satisfaction associated with consuming equal successive units of a good will eventually decline as the amount consumed increases |
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Term
| Steps to figure Consumer Equilibrium |
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Definition
- Graph budget line
- Graph indifference curve
- Find where slope of budget line = slope of indifference curve (-Px/Py=-MUx/MUy)
- Cross multiply and see you are applying the equi-marginal principle…MUx/Px=MUy/Py
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