Dills Final

Front 1

What does consumer choice theory tell us?

Back 1

It examines the trade-offs faced in role of the consumer and provides a more complete understanding of demand.

Front 2

Budget Constraint

Back 2

limit on consumption bundles that a consumer can afford

Front 3

Indifference curve

Back 3

curve that shows consumption bundles that give the consumer the same amount of satisfaction; point of consumption will be chosen on the highest IC

Front 4

MRS

Back 4

marginal rate of substitution; the rate at which the consumer is willing to trade one good for another

Front 5

Properties of ICs

Back 5

1) Higher curves are preferred to lower curves
2) They’re downward sloping (if Q of one good is reduced, Q of the other good must increase for the consumer to be equally happy)
3) They do not cross!
4) They’re bowed inward (the slope of an IC is the MRS, which depends on the amount of each good a consumer is consuming (people are more willing to trade goods they have more of and less willing to trade goods they have less of))

Front 6

Perfect substitutes

Back 6

two goods w/straight-line ICs

Front 7

Perfect complements

Back 7

two goods w/right-angle ICs

Front 8

Optimum

Back 8

point on the budget constraint that lies on the highest IC; at this point, MRS = relative price of the two goods

Front 9

What does MRS tell you?

Back 9

What you're willing to trade off

Front 10

What does your BC tell you?

Back 10

What you're able to trade off