ACE 300 Exam 1

MRS math

-mu1/mu2

How do you find the slope of the budget line?

-p1/p2

Reflexive

Any bundle is at least as good as itself x>/x

Indifferent

Having no preference X~Y

What does slope equal

MRS

Optimality condition math

MRS=-p1/p2

Consumer maximization problem

consumers want to maximize their utility subject to the budget constraint

Strictly prefered

definetily wants x over y x>y

marginal utility math

derrivative

What do indiference curves represent

how consumers prefer bundles

Marginal utility in words

how the consumers utility changes if we give him a little more of one good

Transitive

if x>/y, y>/z then x>/z

How do you find the horizontal intercept of the budget line?

m/p1

How do you find the vertical intercept of the budget line?

m/p2

What are the three properties of well behaved indiference curves?

monotonic, cannot cross, convexity

monotonic

more is prefered to less

Complete

only two bundles can be compared x>/y or y>/x

Changes in the price causes the budget line to

pivot

convexity

preffered at the two extremes

Changes in the income cause the budget line to

shift

Weakly Preffered

sometimes prefers y or may be indifferent to x>/y

What does the ordinal untily implie?

that ranking matters not the actual number assigned

What is the budget constraint?

the affordable consumption bundle that satisfies the budget constraint

What is the definition of MRS

the amount of one good you are willing to give up for one more unit of the other good

What does the budget set represent?

the set of all affordable bundles of x1 and x2