Chapter 4

Question 1

The budget constraint

Answer 1

The set of baskets a consumer can purchase with a limited amount of income

Question 2

Budget line

Answer 2

Set of baskets a consumer can purchase by spending all his income

Question 3

Optimal choice

Answer 3

A basket that maximizes utility while living within the budget constraint

Question 4

Interior optimum

Answer 4

Optimal basket in which positive amounts of all commodities are bought

Question 5

Expenditure minimization problem

Answer 5

Choice between goods that will minimize total spending while achieving a given level of utility

Question 6

Corner point

Answer 6

Solution to optimal choice problem at which some good is not being consumed at all

Question 7

Composite good

Answer 7

A good that represents the collective expenditures on every other good except the commodity being considered

Question 8

Revealed preference

Answer 8

Analysis that enables us to learn about a consumers ranking of goods by observing how choices change as prices and income vary