Microeconomia I

Question 1

Define budget constraint:

Answer 1

It’s what you are allowed to buy based in your budget and prices.

Question 2

Describe the function of the budget constraint:

Answer 2

p(1)x(1) + p(2)x(2) <= m
Where:
“m” is the income and the budget set of the consumer.

Question 3

Why we assume p(2) = 1 in númeraire?

Answer 3

Because we compare a good with set prices to a different which can be whatever. What we are assuming is a general rule of the spend on other goods.
Also we have to mention that the p(2) is a composite good.

Question 4

Define budget set and line:

Answer 4

Set is the conjunct of possible number of goods we can buy. The line is the maximum it.
Remember that the slope is = - p(1)/p(2)

Question 5

What’s the interpretation of the slope?

Answer 5

It means what is the consumer/market is willing to “substitute” good 1 for consumption of good 2.

Question 6

What can be associated with the slope in terms of opportunity cost?

Answer 6

We can say the consumer give ups a certain quantity of the good two just to consume more of the first good.

Question 7

Draw:
- Increasing budget (m)
- Changing price of prices (P1 or P2)

Answer 7

Draw :p

Question 8

What’s the exact definition of Numeraire?

Answer 8

It’s measuring the price of a certain product compared to the others elements in a given equation.

Question 9

What’s a consumer decisions?

Answer 9

It’s a decision for purchase goods

Question 10

What’s the consumer theory?

Answer 10

Consumers choose what they prefer (Consumption bundle) the most from what they can afford (Budget Constraint)

Question 11

What’s the meaning of the slope of the budget constraint?

Answer 11

It’s the opportunity cost.

Question 12

What’s a quantity tax and subsides?

Answer 12

They work as an increase in the price of a good:
Exm:
(s,t + p1)x1 + p2*x2 = m

Question 13

How the value tax/subsidy works?

Answer 13

They increase multiplying the price directly by the tax:
(t + 1)p1x1 + p2x2 = m
Subsidy
(s - 1)p1x1 + p2x2 = m

Question 14

How rationality works in economics?

Answer 14

Consumers have a set o available goods and they prefer the most preferred by themselves.

Question 15

What are the consumption bundles?

Answer 15

They’re a set/list of goods. They have to be the same type and comparable.

Question 16

How is the indifference curve compound?

Answer 16

They all are built by consumption bundles. It’s the list of bundles which are indifferent when comparing.

Question 17

Say the different types of preferences:

Answer 17

• Goods
• Bads
• Neutral
• Perfect complements
• Inferior
• Satiation
• Perfect substitutes

Question 18

How “bads” work?

Answer 18

A consumer wants less of the product so the curve moves to the right.

Question 19

How “Neutral goods” work?

Answer 19

When you are indifferent about the quantity of one good, so your preferences are all based in the other one. They are similar to horizontal line.

Question 20

What are “perfect substitutes”?

Answer 20

They’re in a constant substitution of goods in a constant rate.
The most normal kind of goods.

Question 21

Perfect complements?

Answer 21

It’s a specific set which represents the same utility compared of increasing different goods. The only way to increase the utility is increasing both quantities.

Question 22

Satiated preferences?

Answer 22

It’s an specific spot and the only way to increase utility is approaching to the point.

Question 23

Which characteristics have the well-behaved preferences?

Answer 23

• Rational: You can compare themselves (Complete) and they’re are transitive.
  Reflexiva
  Complete
  Transitive
• Monotonicity
• Convexity
• Continuity: In the function doesn’t exist any kind of skip.

Question 24

How monotonicity works?

Answer 24

Exist two variants:
Normal monotonicity:
- The increase in quantity of two goods will generate more utility than the non-addition.
Strictly monotonic:
- The increase of one just good increase the utility.

Question 25

How convexity works?

Answer 25

Convexity just declares a slight preference relation between two bundles. They aren't that strong compared too the strict convexity. For example: Perfect substitutes are a strict convex function, because all the points which are superior give always more utility. We have to add the preference related to the average of two points.

Question 26

What's the MRS formula:

Answer 26

The derivate of x1 / The derivate of x2.

Question 27

What's the most important part on consumption bundles?

Answer 27

What's the matter in bundles are the order they have, not so much the quantity they generate.

Question 28

Describe nominal utility and cardinal utility:

Answer 28

Nominal one is refereed to the value we obtain. Cardinal one is refereed to the order we get.

Question 29

What's a motonic positive transformation?

Answer 29

- It's a representation of the same preferences. - It's an constant increase in the function of utility. - They don't change the indifferences curves.

Question 30

What's the consumption problem?

Answer 30

It's the dilemma in which he has to choose the greater utility.

Question 31

What's the optimal choice?

Answer 31

It's the condition where the optimal point touches slightly the budget line. The optimal point is also called the ordinary demand point.

Question 32

Which are the cases when there exists exceptions tangency conditions?

Answer 32

- Perfect substitutes. - Concave preferences. - Non-convex preferences. - Perfect complements.

Question 33

What's the inverse curve demand?

Answer 33

We put in the horizontal line the quantity and the price in the vertical axis.

Question 34

How we construct an inverse curve demand with a p2 and m fixed?

Answer 34

As p2 and m is fixed, we can put the results of the changes in price when it touches the indifference curve.

Question 35

Build the inverse curve demand based on a perfect substitutes model (not confuse it with the budget constraint)

Answer 35

Draw.

Question 36

What's the income offer curve?

Answer 36

When prices are fixed and we analyze the increase of the income. We analyze it in a x1, x2 graph.

Question 37

What's the Engel curve?

Answer 37

It's the comparation of the income and the quantity of one good. P1 and P2 are fixed. We base our results in the demand we get from the indifference curve.

Question 38

Define homothethic:

Answer 38

It's a function which the slope is constant. When the bundle increase by a multiplier. Their MRS is a constant when it increases.

Question 39

How we compare normal and inferior goods? (Income effects)

Answer 39

Normal: When income increases, the consumption of the good increases. Inferior: When income increases, the consumption falls.

Question 40

How we compare ordinary goods and giffen? (Price effect)

Answer 40

Ordinary: When price falls, demand increases Giffen: When price increases, demand increases.

Question 40

Draw the giffen good:

Answer 40

draw

Question 41

Cross-price effects:

Answer 41

When the price of good 2 increases. If good 1 demand decrease, for instance they're complement. If good 1 demand increase, for instance, they're substitute.