Session 2: Consumer choice, demand curves, elasticity Flashcards Preview

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Flashcards in Session 2: Consumer choice, demand curves, elasticity Deck (23):
1

What is the utility curve?

A graph that shows the always increasing (at a continuously diminished rate) rate of utility one gets from consuming more goods

2

The more of a good one has...

The larger total use value, but lower marginal use value

3

Marginal Utility

Extra utility (happiness) gained from one additional unit

4

What is the indifference curve?

A graph that shows two products, with a person's preferred combination of those products graphed as a curve

5

What is the marginal rate of substitution?

The point at which you're willing to make a trade-off in the indifference curve

Shown as a linear slope

6

What is the shape of an indifference curve with substitute products?

Regular curve

Trade-off is almost consistent

7

What is the shape of an indifference curve with complementary products?

Looks almost like an L

Trade-off is not consistent

8

What is the budget constraint graph?

A graph with a product on each axis that shows what combinations of those products a person can afford (straight line)

9

What would cause the budget constraint graph to become steeper?

Price of one of the products increases

10

How is demand determined?

Tangent point of budget constraint line and one of a person's utility curves

11

Are complements sensitive to price? What does their demand graph look like?

No

Looks like a normal curve

12

Are substitutes sensitive to price? What does their demand graph look like?

Yes

Looks like an L

13

Is the demand curve changed by prices?

No

14

Normal goods have a...

Positive income elasticity

15

Inferior goods have a...

Negative income elasticity

16

What is the price elasticity of demand?

Describes how sensitive quantity demanded is to price change

% change in quantity demanded for a 1% increase in price

17

What does elastic mean?

Price changes cause big changes in quantity demanded

18

What does inelastic mean?

Price changes cause small changes in quantity demanded

19

What does an elastic demand graph look like?

Nearly flat line, curving downward

20

What does an inelastic demand graph look like?

Nearly vertical curve to the right

21

When a product is inelastic, its price elasticity is...

Less than 1

22

When a product is unitary, its price elasticity is...

~ 1

23

When a product is elastic, its price elasticity is...

Greater than 1