Basic Microeconomics Chapter 4 Flashcards
It is the degree on how individual likes one commodity over the other.
Preference
What are the three assumptions of preference which applies to all utility models?
- Preference is complete.
- Preference is consistent.
- The more is better.
This means that individual will choose one commodity from another for as long as he/she knows completely the information about the
commodities.
Preference is complete.
If you prefer apple than orange, then orange than grapes, you cannot say that you prefer grapes than apple. This is to maintain the uniformity of your proposition regarding your preference.
Preference is consistent.
For a rational individual, you will prefer to have PhP2, 000
worth of groceries than only PhP1, 000 worth of groceries. This applies only in
normal conditions however on the latter part of this module; there are some
exceptions that will violate this assumption.
The more is better.
Level of satisfaction is measured as what?
Utility
The unit of satisfaction is called, what?
utils
Utility can be measured in two methods, what are those?
Ordinal and Cardinal Method
It is done when an individual ranks the utility for commodity.
Ordinal Method
It is the process in which individual give the intensity of utils he derive in 1 unit of goods.
Cardinal Method
It is the point where your total
utility curve is on its peak and the marginal utility is equal to 0.
Saturation Point
It is additional or extra utils the individual
gains when he or she consumes additional 1 unit of commodity.
Marginal Utility
It states that as we consume more and more units of goods, the
marginal utility decreases.
Law of Diminishing Marginal Utility
It is a tool which shows the different combination of goods and
services that an individual consumes that yields the same level of satisfaction or utility.
Indifference Curve
It is the line that represents combination
of goods that can be purchased by your income.
Budget Line
