ECON 201 Lecture Notes - Lecture 15: Indifference Curve, Capital Market, Opportunity Cost

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ECON 201 Lecture Notes - Lecture 14: Consumer Choice, Marginal Utility, Normal Good

ECON 201 Lecture Notes - Lecture 15: Indifference Curve, Capital Market, Opportunity Cost

ECON 201 Lecture Notes - Lecture 16: Average Cost, Average Variable Cost, Marginal Cost

Document Summary

Econ 201 lecture 15 (chapter 7) firms, investors and capital markets (wednesday 24/10 week 6) *important: addition information of chapter 6: special cases of indifference curves: Example: 2 goods are left shoes and right shoes (the same kind of shoe). A, consumers can have 1 left and 1 right shoe => a pair of shoes. At bundle b, although consumers have 1 more left shoe added to the previous pair of shoes, only 1 left shoe cannot bring any additional happiness to the consumers. => a and b yield the same level of utility => on the same indifference curve. Suppose among the 2 compared goods are garbage (consumers still have to pay for this) and another useful good. At bundle a, consumers have 1 useful good and 1 garbage. At bundle b, although consumers have 2 useful goods, they still have to buy 2 garbages which leaves them with the same level of satisfaction as bundle a.

Related Questions

True or False. If False explain why it's false.

1. If all prices are doubled an money income is the left the same, the budget set does not change because the relative prices do not change.

2. A decrease in income pivots the budget line around the bundle initially consumed.

3. If preferences are well-behaved, then for any commodity bundle (x1,x2), the set of commodity bundles that are worse than (x1,x2) is a convex set.

4. The marginal rate of substitution measures the distance betwee one indifference curve and the next one.

5. If someone has the utility function U= 2min(x, y), then x and y are perfect complements for that person.

6. At the boundary optimum, a consumers indifference curve must be tangent to her budget line.

7. If two goods are substitutes, then an increase in the price of one of them will increase the demand for the other.

8. An Engel curve is a demand curve with the vertical and horizontal axes reversed.

9. An inferior good is less durable than a normal good.

10. When other variables are held fixed, the demand for a Giffen good rises when income increase.

Suppose all consumers are maximizing utility with convex indifference curves. All face the same prices, and are perfectly rational. According to microeconomic models, at the maximization bundle they should

A. All have the same marginal rate of substitution

B. All buy more of the least expensive good

C. All end up with the same bundle of goods

D. All have the same level of satisfaction

Consider an indifference map with food on the vertical axis and shelter on the horizontal axis.

If a consumer is willing to give up 3 units of food in exchange for 1 unit of shelter and food is priced at $5 per unit and shelter at $10 per unit, then the consumer is:

A. Purchasing too much food for utility maximization

B. Purchasing too much shelter for utility maximization

C. Purchasing just the right amount of each good for utility maximization

D. Purchasing less than the budget would allow

If a consumer with convex indifference curves moves along her budget line, closer and closer to the horizontal axis, as she is moving:

		A. The marginal utility she gets from good Y declines.
		B. The marginal utility she gets from good X declines.
		C. The marginal utility she gets from good X increases.
		D. The price ratio of the two goods changes.

budget line

marginal utility

complete property of preferences

market demand

consumption bundle

substitution effect

Giffen good

total effect

income effect

transitive property of preferences

indifference curves

utility

the marginal rate of substitution

utility function

1.	_____	The satisfaction or benefit that consumers receive from consuming goods or services.
2.	________________ _	A particular combination of specific quantities of goods or services
3.	________________ _	Consumers can rank all conceivable bundles of goods or services
4.	_____	If A is preferred to B, and B is preferred to C, then A is always preferred to C.
5.	_____	Equation showing a consumerâs perception of the total utility forthcoming from consuming each bundle of goods and services.
6.	_____	A set of consumption bundles each and every one of which provides a consumer with exactly the same level of total utility.
7.	_____	The number of units of Y that must be given up for total utility to remain the same when one more unit of X is consumed.
8.	_____	The addition to total utility attributable to consuming one more unit of a good, holding the consumption of all other goods constant.
9.	_____	The line showing all bundles of goods that can be purchased at given prices if the entire income is spent.
10.	_____	The change in the consumption of a good that would result if the consumer remained on the original indifference curve after the price of the good changes.
11.	_____	The change in consumption of goods results strictly from the change in purchasing power after the price of a good changes.
12.	________________ _	The sum of the substitution and income effects.
13.	_____	A good for which quantity demanded varies directly with price, causing an upward sloping demand curve.
14.	_____	A list of prices and the corresponding quantity consumers are willing and able to purchase at each price.

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ECON 201 Lecture Notes - Lecture 15: Indifference Curve, Capital Market, Opportunity Cost

ECON 201 Lecture Notes - Lecture 14: Consumer Choice, Marginal Utility, Normal Good

ECON 201 Lecture Notes - Lecture 15: Indifference Curve, Capital Market, Opportunity Cost

ECON 201 Lecture Notes - Lecture 16: Average Cost, Average Variable Cost, Marginal Cost

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