A curve that shows consumption bundles that give the consumer the same level of satisfaction. Example; the combinations of pizza and Pepsi with which the consumer is equally statisfied.
Perfect complements indifference curveRight angles - Things that have to work together to be consumed. U will not be better off.Perfect substitutes on indifference curve?Straight line going down. You will be equally as happy to consume either good so your MRS is constant. E.G. you will be equally happy to use a pen or a pencil.What is the budget line?The amount of income you can possibly spend on two goods.When do you get a straight line on budget?When you connect the different options that represent the ways you can spend your income, you get a straight line. Given your budget and the goods prices.What is the relative price?The opportunity cost of giving up one good for the other because having more of one good requires giving up some of the other. The slope is the opp cost.Can you afford combinations outside your budget line?NoCan you afford an combination of goods inside your budget line?YesWhat happens to your budget constraint when your income increases?Does not affect the relative price of goods.
Whole budget constraint will move outward to the right.
Trade-off still remains the same, it just means you can afford more combinations of each good.What happens to your budget constraint when the price of one good falls?It rotates outward on the product which falls in price, but the other good which price doesn't change stay the same.
trade-off becomes different as the other good becomes more expensive in terms of the good which fell in price.What happens to your budget constraint when the price of one good increases?The line on the price of a good that increases rotates inward as you'll be less inclined to buy the product which has increased in price. But the line still stays the same on the product which has not changed in price.In selecting an optimal consumption bundle, the consumer
Select one:
a.takes the relative price of commodities as given
b.matches the slopes of the indifference curve and the budget constraint
c.equates marginal rate of substitution and relative price
d.all of the aboveDThe slope of the budget constraint is determined by
Select one:
a.the consumer making choices about expenditure
b.a consumer selecting prices she is willing to pay for a commodity bundle
c.a consumer's income
d.relative market pricesDBeer and pretzels are normal goods. When the price of beer falls, the substitution effect causes
Select one:
a.the consumer to feel richer, so the consumer buys more pretzels.
b.the consumer to feel richer, so the consumer buys less pretzels.
c.pretzels to be relatively more expensive, so the consumer buys less pretzels.
d.pretzels to be relatively less expensive, so the consumer buys more pretzels.CBeer and pretzels are normal goods. When the price of beer falls, the income effect causes a
Select one:
a.shift to a lower indifference curve and the consumer buys less pretzels.
b.shift to a higher indifference curve and the consumer buys more pretzels.
c.movement along the indifference curve and the consumer buys less pretzels.
d.movement along the indifference curve and the consumer buys more pretzels.BWhen income increases, a linear budget constraint
Select one:
a.will shift in toward the origin
b.will shift outward from the origin
c.will pivot around the "Y" axis
d.will pivot around the "X" axisBBeer and pretzels are normal goods. When the price of beer falls, the income effect causes
Select one:
a.the consumer to feel richer, so the consumer buys more pretzels.
b.the consumer to feel richer, so the consumer buys less pretzels.
c.pretzels to be relatively more expensive, so the consumer buys more pretzels.
d.pretzels to be relatively less expensive, so the consumer buys less pretzels.AThe rate at which a consumer is willing to exchange one good for another and maintain a constant level of satisfaction is called
Select one:
a.the marginal rate of substitution
b.the relative price ratio
c.the relative expenditure ratio
d.the value of marginal productAIndifference curves provide a way to graphically represent
Select one:
a.the constraints faced by individuals
b.an individual's preferences
c.the relative price of commodities
d.an income level sufficient to make an individual happyBAn optimising consumer will select a consumption bundle in which the
Select one:
a.marginal rate of substitution is equal to income
b.marginal rate of substitution is equal to the relative price
c.ratio of expenditure shares equals the marginal rate of substitution
d.utility exceeds priceB
