EC120 Study Guide - Midterm Guide: Production Function, Average Cost, Diminishing Returns

100 views3 pages

browndolphin102

26 Feb 2016

School

Department

Course

Professor

For unlimited access to Study Guides, a Grade+ subscription is required.

carminegrasshopper545 and 38337 others unlocked

EC120 Full Course Notes

Verified Note

30 documents

Document Summary

Theory of consumer choice: consumer choose the best bundle of they goods they can afford. Slope: -p1/p2 (rate at which consumer can trade one good for another) Marginal rate of substitution is constant along the indifference curves. Optimization: point on budget constraint that touches the highest possible indifference curve. **where the curve only hits the slope once*** Changes in income: if income increase, budget constraint shifts outward. Both normal goods: new optimal bundles will have more quantity demanded of both goods with more income. Inferior good: the increase in income will result in less demand for the inferior good. What the budget constraint is, the effects, and factor that affect it. The consumer demand curve: a summary of the optimal solutions arising from their budge constraint and indifference curves. Reflects quantity demanded of a good given different prices changes. Consumer will always choose the bundle of goods that they can afford.

Related Questions

1. Economists use indifference curves to characterize the preferences of a rational consumer. There are some plausible assumptions that lead to a set of âwell-behavedâ (i.e., downward-sloping and strictly convex) indifference curves. Which one of the following is NOT among the assumptions?

a. All goods must be economic âgoods.â

b. Preferences are complete.

c. Preferences are transitive.

d. All goods are normal goods

2. Given the prices of good X and Y, the (negative of the) slope of the budget constraint (i.e., - PX/PY) measures

a. the amount of good Y the consumer is willing to forgo in order to consume one more unit of good X.

b. the ratio of the consumer's income to the price of the X good.

c. the quantity of the Y good that must be forgone in order to purchase one more unit of the X good.

d. the quantity of the X good that must be forgone in order to purchase one more unit of the Y good.

3. Which of the following statements is incorrect for an inferior good?

a. An inferior good may have an upward-sloping demand curve.

b. The income elasticity of demand for an inferior good is negative.

c. An inferior good is an economic âbad.â

d. All of the above.

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.

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.

blushwildebeest943

EC120 Study Guide - Midterm Guide: Production Function, Average Cost, Diminishing Returns

EC120 Full Course Notes

Document Summary

Get access

Related Documents

EC120 Lecture Notes - Lecture 5: Giffen Good, Budget Constraint, Eurocopter Ec120 Colibri

EC120 Lecture Notes - Lecture 5: Black Market, Competitive Equilibrium, Tax Incidence

EC120 Lecture Notes - Lecture 5: Budget Constraint, Indifference Curve, Demand Curve

Related Questions