Term
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Definition
| Consumers want to maximize their utility or welfare gained from a product. We are not "brutish or selfish" but we want to get the most out of a product. |
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Term
| Law of Diminishing Marginal Rate of Substitution |
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Definition
| If we have 2 good the more we take away from 1 good the more of the other is required to reach max utility. Law of MRS is the slope at any given point on the indifference curve. |
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Term
| Preferences are Transitive |
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Definition
| If A is preferred to B and B is preferred to C. Indifference curves cannot intersect. |
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Term
| More is preferred to less |
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Definition
| Consumers would prefer a bundle with more of each product or compared to one with less of each. Equilibrium = Slope of budget line is equal to the indifference curve. |
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Term
| Consumers are Knowledgeable |
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Definition
| Consumers know about each of the goods, they are not just guessing i.e. ordering on a foreign menu |
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