Term
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Definition
Consists of all bundles of goods that the consumer can afford at given prices and income.
(assume only 2 goods) |
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Term
The budget line equation, slope, and intercepts
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Definition
Equation: p1x1 + p2x2 = m
Slope= -p1/p2
Intercepts= m/p2, m/p1 |
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Term
Increasing income effects the budget line how?
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Definition
| It shifts the budget line outward |
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Term
| Increasing the price of good 1 does what to the budget line |
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Definition
| This makes the budget line steeper |
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Term
| Increasing the price of good 2 does what to the budget line |
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Definition
| Makes the budget line flatter. |
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Term
Taxes, subsidies, and rationing change the slope and position of the budget line by doing what?
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Definition
| changint he prices paid by the consumer. |
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Term
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Definition
| the price relative to which we are measuring the other price and income |
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Term
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Definition
how much the consumer is choosing to consume of good 1, x1 and how much the consumer is choosing to consume of good 2, x2.
(x1,x2) |
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Term
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Definition
| everything else that the consumer might want to consume other than good 1. |
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Term
| increasing income's affect on budget line |
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Definition
| causes a parallel shift outward of the budget line |
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Term
| if good 1 becomes more expensive, |
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Definition
| the budget line becomes steeper |
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Term
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Definition
| the consumer has to pay a certain amount to the government for each unit of the good he purchases |
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Term
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Definition
tax on the value (price) of a good, rather than the quantity purchased of a good.
(ad valorem tax) |
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Term
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Definition
| the government gives an amount to the consumer that dependson the amount of the good purchased |
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Term
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Definition
| the gov. takes away some fixed amount of money, regardless of the individual's behavior (income is reduced) |
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Term
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Definition
| budget line will shift outward as the gov gives a fixed amount of money. |
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Term
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Definition
| the consumer prefers or is indifferent between the two bundles ; |
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Term
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Definition
we assume that any 2 bundles can be compared.
given any x and any y bundle, we assume that (x1,x2) is >/= (y1,y2), or (y1,y2) >/= (x1.x2), or both
consumer is indifferent |
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Term
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Definition
any bundle is at least as good as itself:
(x1,x2)>/= (x1,x2) |
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Term
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Definition
if x1,x2 >/= y1,y2 and y1,y2>/= z1,z2 then x1,x2 >/= z1,z2.
if the consumer thinks that X is at least as good as Y and that Y is at least as good as Z, then the consumer think that X is at least as good as Z. |
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Term
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Definition
| a way to represent or summarize a prefence ordering. The numerical magnitudes have no intrinsic value |
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Term
| MRS equation for the utility function |
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Definition
| MRS= deltax2/deltax1= -Mu1/Mu2 |
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