ARE 2150 Lecture Notes - Lecture 12: Indifference Curve, Market Basket

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cerisecrow681

29 Jan 2020

School

UConn

Department

Agricultural and Resource Economics

Course

ARE 2150

Professor

Emma Bojinova

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Document Summary

Indifference curves: curve representing all combinations of market baskets that provide a consumer with the same level of satisfaction. Indifference maps: graph containing a set of indifference curves showing the market baskets among which a consumer is indifferent. Marginal rate of substitution (mrs): maximum amount of a good that a consumer is willing to give up in order to obtain one additional unit of another good. Observe that the mrs falls as we move down the indifference curve. The decline in the mrs reflects our fourth assumption regarding consumer preferences: a diminishing marginal rate of substitution. When the mrs diminishes along an indifference curve, the curve is convex. Perfect substitutes: two goods for which the marginal rate of substitution of one for the other is a constant. Perfect complements: two goods for which the mrs is zero or infinite; the indifference curves are shaped as right angles. Bad: good for which less is preferred rather than more.

Related Questions

Microeconomics Four-part multiple choice question with an explanation. Give a short explanation for each part regarding how your answer is computed or why your answer is correct.

Part A.

Para mi volunteers at a homeless shelter. It takes a lot of her time, and thus she sometimes takes off time from her job to do the volunteer work. Parami's behavior can be explained by:

	overconfidence.
	a framing bias.
	altruism.
	overvaluing the present relative to the future.

Part B.

Indifference curves cannot be concave to the origin because:

	consumers generally will prefer to have more of a good than less of a good.
	the satisfaction consumers get from consuming additional units of a good decline.
	the substitution effect holds across indifference curves.
	consumers must give up more of one good to obtain more of another good.

Part C.

Marginal utility analysis and indifference curve analysis are both used to:

	compute comparative advantage.
	derive supply curves.
	derive demand curves.
	analyze the total revenue.

Part D.

Indifference curves:

	represent a set of product bundles to which a consumer is indifferent.
	slope up and to the right.
	show the difference between the marginal utilities of two different goods.
	are concave to the origin.

limecod304

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.

We assume that each consumer seeks the highest indifference curve possible.

The budget line gives the combinations of two goods that the consumer can purchase with a given budget.

List and briefly describe the two conditions that satisfy utility maximization when selecting a combination of two goods.

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ARE 2150 Lecture Notes - Lecture 12: Indifference Curve, Market Basket

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