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13 Cards in this Set
- Front
- Back
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The rate at which a consumer is willing to give up Y for an additional unit of X, such that his/her utility does not change.
It is the absolute value of the slope of the IC. |
Marginal Rate of Substitution
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The locus of points showing combinations of commodoties that give the consumer equal satisfaction
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Indiffernce Curve
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Is the Utility function
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U(X,Y)
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________ is the additional satisfaction (utility) derived from an additional unit of a good, holding levels of consumption of all other goods
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Marginal Utility
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_______ is the marginal utility of good X. MUx is a derivative in the sense that everything else is held constant while X varies.
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MUx
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As a person consumes more and more of a given good (holding all other goods constant), the marginal utility of the good eventually will tend to decline
As we move from left to right along an IC, MUx falls and MUy rises. Since the numerator is decreasing, the quotient is decreasing, that is MRS is falling |
Law of Diminishing Marginal Utility
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PxX+PyY < = I
Budget set is all the consumer's affordable bundles at the given prices and income. That is, it is all the (X,Y) that satisfy the budget constraint |
Budget Constraint
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Is all the bundles that cost exactly I. That is, it is given by by PxX+PyY = I
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Budget Line
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Px, Py and I are _____
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Parameters
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X and Y are _________
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variables
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∆X/∆Y
_____ is the change in Y over the change in X. |
Slope of the line
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________ measures the opportunity cost of good x - how much of good Y you must give up to consume one more unit of good X.
It is negative because you have to get less of one good to get more of another to hold income constant |
Slope of the budget line
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A _____ =
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a Negative Tax
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