# Shared Flashcard Set

## Details

Microeconomics midterm 2
chapter. 6, 11, 12, 13, 14, 15
12
Economics
Not Applicable
11/15/2007

Term
 Budget Line
Definition
 Shows all the combinations of 2 goods that exhaust the consumer's budget [image]
Term
 Consumer's Constraint
Definition
 Is the budget line, where slope is price ratio of two goods. [image]
Term
 Budget Set
Definition
 A set of points that includes all the combinations of goods that a consumer can afford, given that the consumer's income and the prices of the goods.
Term
 Consumer's prefrences are defined by...
Definition
 indifference curves, whos slope is the marginal rate of substitution.
Term
 To find the price ratio or the market trade off
Definition
 you find the slope of the budget line (the rise) divided by the run
Term
 An indifference curve represents
Definition
 the fundamental idea that there are different ways for a consumer to reach a particular level of satisfaction, or what economist call utility
Term
 An indifference cuve shows
Definition
 the different combinations of 2 goods that generate the same level of utility or satisfaction
Term
 Superior combinations
Definition
 All combinations above the indifference curve generate higher utility than combinations on the curve
Term
 Inferior Combinations
Definition
 All the combinations below the indifference curve generate lower utility than combinations on the curve
Term
 Equivalent Combinations
Definition
 All combinations along the indifference curve gnerate the same utility as combination. So the consumer would be indifferent to all the points on the indifference curve
Term
 What is the Marginal Rate of Substitution (MRS)?
Definition
 To keep utility constant, there is a negative relatipnship between books and movies, so the indifference curve is negatively sloped. The slope of the curve is called the marginal rate of substitutio between two goods; it is the rate at which the consumer is willing to substitute one good for another. The indiffernce curve becomes flatter as we move downward along the curve [image]
Term
 How would a consumer maximize utility?
Definition
 To maximize utility the consumer finds
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