Consumer demand

Question 1

What are the key elements in consumer choice?

Answer 1

Consumer income.
Prices of goods.
Consumer preferences.
The assumption that consumers maximise utility.

Question 2

What does an indifference curve show?

Answer 2

All the consumption bundles that yield the same utility to the consumer.
They slope downwards and get steadily flatter.
They can’t intersect.

Question 3

What is the substitution effect?

Answer 3

The adjustment to the change in relative prices

Question 4

What is the income effect?

Answer 4

The adjustment to the change in real income