# Shared Flashcard Set

## Details

Consumer Economics Test 1
na
22
Economics
02/13/2013

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