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
