16 terms

# Micro Midterm 1

#### Terms in this set (...)

Utility Maximization Rule
MUx/Px = MUy/Py
Axioms of Consumer Choice
1. completeness
2. transitivity
3. continuity
Substitution Effect
The change in the quantity of a good that a consumer demands when the good's price rises, you hold other prices and utilities constant.
Income Effect
The change in the quantity of good a consumer demands because of a change in income holding prices constant.
Ax
The budget share, the average propensity to consume
quasi-linear
...
Slutsky equation in elasticity form
E^T = E^S - sigma^x * A^x

MIC Elasticity = RIC Elasticity - income elasticity * average propensity to consume
indifference curves
the set of all bundles of goods are viewed as being equally desirable
utility function
relationship between utility measures and every possible bundle of goods
u = number of utilz
marginal rate of substitution
the tradeoff the consumer would want to make regardless of income
Cobb douglas
The demand functions depends on the consumer's income and each goods price.
income elasticity
percentage change in the quantity demanded of a product in response to a given percentage change in income
COLAS
raise prices according to an index of inflation
CV
compensation variation: the amount of money one would have to give a consumer to offset completely the harm from a price increase
EV
equivalent variation: the amount of money one would have to take from a consumer to harm the consumer by as much as the price increase, moves consumer to a new, lower indifference curve
Income Elasticity
the percentage change in the quantity demanded of a product in response to a given percentage change in income