Chapter 9 - Possibilities, Preferences And Choices

Question 1

Indifference curve

Answer 1

Shows combinations of goods among which a consumer is indifferent

Question 2

Preference map

Answer 2

A set of indifference curves.

Question 3

Marginal rate of substitution

Answer 3

Rate at which a person is willing to give up good y to get an additional unit of good x and remain on the same indifference curve. (Gradient on indifference curve)

Question 4

Optimal point

Answer 4

Point where budget line and highest attainable indifference curve meet – tangent

Question 5

Substitution effect

Answer 5

Effect of a change in price on the quantity bought when the consumer remains indifferent between the original situation and the new situation.

Question 6

Price effect

Answer 6

Substitution effect + income effect

Question 7

Normal good (price effect)

Answer 7

Substitution and income effect in same direction

Question 8

Inferior good (price effect)

Answer 8

Substitution effect and income effect in opposite directions