Demand and Supply Analysis: Consumer Demand Flashcards Preview

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Flashcards in Demand and Supply Analysis: Consumer Demand Deck (10):
1

Consumer choice theory

Branch of micro relating consumer demand curves to consumer preferences (willingness to trade off between goods)

2

Utility theory

Consumer knows his preferences and acts rationally to obtain preferred consumption bundle

3

Describe use of indifference curves in decision making

All combinations of two goods such that consumer is indifferent among options

4

Describe use of opportunity sets in decision making

Graph preferences based on different opportunities that are available.

5

Describe use of budget constraints in decision making

Calculate zero of each good for axis intercepts, connect line for slope (rise over run)

6

Calculate/interpret budget constraint

Quantity of X times Price of X + QyPy . . . < Budget

7

Determine consumer's equilibrium bundle of goods based on utility analysis

MRS(xy) equals Px/Py

8

Compare substitution and income effects

If good declines in price, it is substituted more for other goods in the basket. Consumer's income also can buy more goods than previously.

9

Distinguish between normal and inferior goods; explain Giffen and Veblen goods

Inferior goods people buy less of when price decreases, normal goods people buy more of with price decrease. Giffen good is inferior with income effect greater than substitution effect. Veblen good is something people buy more of when price increases (conspicuous consumption).

10

Marginal rate of substitution of XY

Consumer willing to give up ___ units of Y for 1 unit of X, but not less