# Shared Flashcard Set

## Details

Consumer Choice
Quiz 4
19
Economics
02/19/2013

Term
 What is a budget line?
Definition
 Maximum combination of 2 goods a consumer can buy, given thier income and price of the 2 goods
Term
 What is a shift in the budget line?
Definition
 Changes in INCOME will SHIFT the budget line. (Increase RIGHT; Decrease LEFT)
Term
 What causes a PIVOT in budget line?
Definition
 Changes in PRICE will pivot budget line. (INCREASE Px = LEFT; DECREASE Px = RIGHT)
Term
 What is indifference curve properties?
Definition
 Every possible combination of goods is on an indifference curve Indifference curves are negatively sloped (you must give up one to gain the other) Indifference curves further from origin represent higher levels of total satisfaction (always prefer more to less) Indifference curves never intersect Indifference curves are convex (bowed into origin) Slope of indifference curve = -MUx/MUy
Term
 What is the eqi-marginal principle?
Definition
 the last dollar spent on each good must yield the same gain in satisfaction as the last dollar spent on any other good
Term
 What are the good defintions for INCOME (Ey)?
Definition
 >0 NORMAL good <0 INFERIOR good +>1 SUPERIOR good
Term
 What is UTILITY satisfaction?
Definition
 derived when consuming the same thing (only order/ can't compare with people)
Term
 What is MARGINAL?
Definition
 what happens when you take the next step
Term
 What is MARGINAL UTILITY?
Definition
 gain satisfaction as you consume the next unit
Term
 When TOTAL UTILITY(TU) is MAX = ____?
Definition
 Marginal Utility (MU) = 0
Term
 How many combinations of  of 2 goods are on a I.C?
Definition
 ALL combos
Term
 At every point on a I.C., the level of _____ is the _____?
Definition
 At every point on a I.C., the level of SATISFACTION is the SAME.
Term
 I.C. have a ____ slope, must ___ 1 good to ____ another?
Definition
 I.C. have a NEGATIVE slope, must LOSE 1 good to GAIN another?
Term
 What is the slope of a I.C.?
Definition
 MUx/MUy
Term
 I.C. never ____?
Definition
 Intersects
Term
 I.C. curves ____ from the ____ represent ____ levels of _____ satisfaction?
Definition
 I.C. curves FURTHER from the ORIGIN represent HIGHER levels of TOTAL satisfaction?
Term
 I.C. curves are ____ ?
Definition
 CONVEX
Term
 Law of diminishing marginal utility
Definition
 the gain in satisfaction associated with consuming equal successive units of a good will eventually decline as the amount consumed increases
Term
 Steps to figure Consumer Equilibrium
Definition
 Graph budget line  Graph indifference curve  Find where slope of budget line = slope of indifference curve (-Px/Py=-MUx/MUy)  Cross multiply and see you are applying the equi-marginal principle…MUx/Px=MUy/Py
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