chapter 3 Flashcards
(9 cards)
1
Q
utility function
A
measures level of satisfaction a consumer received from a basket
2
Q
marginal utility
A
additional utility get from consuming more of y
3
Q
marginal utility formula…
A
MU(x) = delta U/ delta X = deriv U / deriv of X
4
Q
more is better happens when MU …
A
MU > 0
5
Q
principle of diminshing marginal utility
A
x goes up, MU(x) goes down
6
Q
4 rules of indifference curves
A
- negative slope
- do not intersect
- bundle lies on only one line
- not thick
7
Q
marginal rate of Sub (MRS)
A
max rate consumer is willing to give up one good for more of another
8
Q
MRS formula
A
MRSxy = MUx / MUy
positive in equation
neg slope for indiff curve
9
Q
principle of diminishing MRS
A
x goes up, MRSxy goes down
