ECO 101 Chapter Notes - Chapter 21: Budget Constraint, Indifference Curve, Normal Good

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25 Aug 2016

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The budget constraint: what the consumer can afford. Budget constraint- the limit on the consumption bundles that a consumer can afford. The slope of the budget constraint measures the rate at which the consumer can trade one good for the other (slope is negative but signs can be ignored) Consumers" choice also depends on preference regarding the goods. If two bundles suits a consumer"s tastes equally well, consumer is indifferent. Indifference curve- shows consumption bundles that give the consumer that same level of satisfaction. The slope at any point equals the rate at which the consumer is willing to substitute one good for the other. Marginal rate of substitution (mrs)-the rate at which a consumer is willing to trade one good for another. Because indifference curves are not straight lines, the marginal rate of substitution is not the same at all points on a given indifference curve.

Related Questions

11) Which one of the following is true at the best affordable choice of a consumer? A) Marginal rate of substitution is less than the relative price of the good measured on the r-axis. B) Other consumption points along the consumer's budget line lie on higher indifference curves. C) Marginal rate of substitution exceeds the slope of the budget line. D) The consumption choice is outside the budget line. E) All income is spent.

24) Which one of the following is true at the best affordable choice of a consumer? A) Marginal rate of substitution exceeds the slope of the budget line. B) Marginal rate of substitution is less than the relative price of the good measured on the X-axis. C) All income is spent. D) The consumption choice is outside the budget line. E) Other consumption points along the consumer's budget line lie on higher indifference curves.

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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ECO 101 Chapter Notes - Chapter 21: Budget Constraint, Indifference Curve, Normal Good

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