-
what is a preference?
a consumers likes and dislikes
-
what is the ranking principle?
a consumer can rank in order of preference all potentially available alernatives.
-
what is being indifferent?
liking or disliking two alternatives equally
-
what is the choice principle?
among the available alternatives, the consumer selects the one that he ranks the highest
-
what is a consumption bundle?
the collection of goods that an individual consumes over a given period such as an hour, a day a month a year or a lifetime
-
what is the more is better principle?
when one consumption bundle contains more of every good than a second bundle, a consumer prefers the first bundle to the second
-
what is an indifference curve?
it shows all the other alternatives that a consumer likes equally well
-
what are some of the properties of indifference curves?
- 1. They are thin
- 2. They do not slope upwards
- 3. the indiffernce curve that runs through consumption bundle A seperates all the better than A bundles from the worse than A bundles
-
what is a family of indifference curves?
a collection of indofference curves that represent the prefrences of the same individual
-
what are some of the properties of families of indifferenc curves?
- 1. they do not cross
- 2. in comparing any two bundles, the consumer prefers the one located on the indifference curve that is furthest from the origin. this means that for any bundle A, the better than A bundles lie to NE of the indifference curve. for those that are worse off, they lie to the SW of the origin
-
the marginal rate of substitutionfor X with Y
the arte at which a consumer must adjust Y to maintain the same level of well being when X changes by a tiny amount from a given starting point. mathematically, if a change in X is the tiny change in X and the change in Y is the adjustment to Y then MRSXY= -change in Y/ change in X
-
what determines a declinig MRS
if it becomes flatter as we move along the curve from the NW to the SE
-
what are perfect substitutes?
2 products are perfect substitutes if they are valuable only when used together in fixed proportions.
-
what are perfect complements?
2 products are perfect complements if they are valuable only when used together in fixed proportions
-
what is utility?
a numeric value indicating the consumers well being the higher the utility, the higher the satisfaction than lower utility
-
what is a utility function ?
a mathematical function that assigns a utility value to each consumption bundle
-
what is an ordinal preference?
it allows us to determine only whether one alternative is better or worse than another.
-
what is cardinal information
tells us something about the intensoty of those preferences. it answers the question, " how much worse?" or how much better?
|
|
