Consumer Prefernces Flashcards
(18 cards)
With preferences you must?
Allocate your money and choose which bundle of resources to buy
What are the possibilities on how consumers choose which bundle of goods to buy?
Consumers behave blindly and randomly
Consumers make systematic choices
What are the properties of consumer preferences?
Completeness
Transitivity
More is better
Convexity
Explain completeness
Consumer either
a) prefers the first bundle to the second bundle
b) prefers the second bundle to the first
c) is indifferent between them
Explain the more is better property
All else the same, more of a commodity is better than less of it
The more is better property is also known as
Nonsatiation property
What is the convexity property
Consumers prefer averages to extremes
What is an indifference curve?
Set of all the bundles of goods that a consumer views as being equally desirable
What are five properties of indifference curves
- Can’t cross
- Slope downward
- Can’t be thick
- There is an indifference curve through every bundle
- Bundles on indifference curves farther from the origin are preferred to those on indifference curves closer to the origin
What is marginal rate of substitution
Willingness to substitute between goods
Because t( inference curve is downward sloping what is the MRS
Negative
What is a perfect substitute
Goods to which a consumer is completely indifferent as to which to consume
What is prefer to complements
Goods that a consumer is interested in consuming* only in fixed portions
What is utility function
The relationship between relationship measure and every possible bundle of goods
What is marginal utility
The extra utility that a consumer gets from consuming the last unit of a good
