35 Multiple choice questions
- As the price of a good falls, the consumer substitutes that good in place of other goods whose prices have not changed.
- Budget Line
- At that point, there is no further gain from reallocating spending in either direction.
- Relative price
- showing that Max's responses to price changes obey the law of demand.
- These shifts are parallel: CHanges in income do not affect the budget line's slope.
- Above and to the right
- As consumption of a good or derive increases, marginal utility decreases.
- The consumer will turn down the product.
- The Marginal Utility Approach
- We generally feel more is better.
- Both its slope and one of ties intercepts will change.
More specifically, we assume that you can look at two alternatives and
state wither that you prefer one to the other or that you are entirely
indifferent detween the two -- you value them equally. Another common
denominator is that preferences are logically consistent or transitive.
a particular good is normal or inferior demanded depends on the
individual's preferences, as represented by the marginal utilities for
each good, at each pint along his budget line.
that satisfy two conditions: 1. Any two alternatives can be compared,
and one is preferred or else the two are valued equally, and 2. The
comparisons are logically consistent or transitive.
income effect of a price change wrists from a change in purchasing
power over both goods. A drop in price increases total purchasing power,
while a rise in price decreases total purchasing power. As the price of
a good decreases, the consumers' purchasing power increases, causing a
change in quantity demanded for the good.
- The change in total utility
We have to pay for the goods and services we buy 2. We have limited
funds to spend. These two facts are summarized by our budget constraint.
- The different combinations of goods a consumer can afford with a limited budget, at given prices.
- Substitution effect
- Law of Diminishing Marginal Utility
- A quantitative measure of pleasure or satisfaction obtained from consuming goods and services.
- If this condition is not satisfied, the consumer will be better off consuming more of one and less of the other good in a pair.
- Absolute value
- pivoting around its vertical intercept. What if we drop the budget line further? The budget line rotates further rightward.
change in total utility an individual obtains from consuming an
additional unit of a good or service. Marginial utility is the change in
utility an individual enjoys from consuming an additional unit of a
- Budget constraint
- Px/Py= the relative price of good X
= The opportunity cost of one more unit of good x
= the absolute value of the slope of the consumer's budget line.