Rational Consumer Choice Flashcards
(16 cards)
What did 19th century economists think about utility
It was cardinal
What concept of utility is the center of 1930 + consumer theory
Preference
Who came up with utility as preference
John Hicks
Under Hicks’ utility as preference is utility cardinal or ordinal
Ordinal
What are the proerties of preference orderings
- Completeness
- Transitivity - A better than B which is better than C so A better than C
- Non satiation- more preferred than less
- Convexity- mixtures of a good preferred to extremes
What does this diagram explain
Non satiation
What does this diagram explain
Completeness
What shape does an economic bads’ indifference curve take
Upward sloping
Can ICs intersect
NO
What is the MRS
The rate at which a consumer is willing to sub good x for good y
What is the MRS equal to
The absolute value of the slope of the IC at that point
What does the property of convexity illustrate
A mixture of two goods is preferred to extremes of one
What is exhibited regarding MRS within an IC
Diminishing MRS
If a person IC is steeper than other persons, what does that mean about that person’s valuation of good X
They value it higher than the other person
What is marginal utility
How much utility a small change in the good provides
What is the steepneess of a necessity good like
Really steep as willing to trade a lot of other goods on y axis for little amount of necessity on x axis
