Flashcards in Demand - Consumer Behavior Deck (21):

1

## Indifference Curves

### Consumers' tastes (without regard to what they can afford)

2

## Budget Lines

### Consumers' Opportunities (without regard to his/her preference)

3

## Marginal Rate of Substitution

###
Number of units of good y for which consumer is willing to trade on unit of good x (Posititve).

Slope of the indifference curve (Negative)

4

## Marginal Rate of Substitution (Names)

###
Marginal Value (of a good in terms of the other)

Marginal Willingness to Pay (for a good in terms of the other)

5

## Consumer's Choice

### In optimum the consumer chooses the most preferred of the bundels which the consumer can afford. It's the best affordable bundle of consumption goods.

6

## Tangency Condition

### For "nice" indifference curves and budget lines: The bundle the consumer chooses (the optimal consumption bundle) will be located where her budget line is tangent to one of her indifference curves.

7

## Normal Goods

### Goods you consumer more when your income rises [xa --> xb]

8

## Inferior Goods

### Goods you consume less when your income rises [xa --> xc]

9

## Income Consumption Curve

### The set of consumption bundles for different levels of income. We construct the ICC by determining and connecting the optimal consumption bundle for all levels of income. The curve is in a coordinate system with good x and y on the respective axis.

10

## Engel Curve

### A curve showing, for fixed prices, the relationship between income and the quantity of a good consumed. It is used to represent the sensitivity of consumption to changes in money income.

11

## Income Elasticity of Demand

### The percent change in consumption that results from a 1% increase in income

12

## Ordinary Goods

### The quantity demanded x of ordinary goods decreases with price Px.

13

## Giffen Goods

### The quantity demanded x of Giffen goods increase with price increase Px.

14

## Substitiution Effect

### Indicates how the consumer "substitutes" one good for the other when a price changes but the consumer is (hypothetically) compensated for the price change (i.e. he is equally happy)

15

## Income Effect

### The change in consumption due to a change in income

16

## Price Elasticity of Demand

### The percent change in consumption that results from a 1% increase in price

17

## Inelastic Demand

### Consumers show little or no reaction to price changes --- steep demand curves

18

## Elastic Demand

### Consumers strongly react to price changes ---flat demand curves

19

## Cross-Price Elasticity of Demand

### The percent change in consumption of x that results from a 1% increase in the price of a related good (say y)

20

## Substitutes

### Goods for which the cross elasticity of demand is positive

21