Week 11

Question 1

Budget Constraint

Answer 1

The limit on the consumption bundles that a consumer can afford

Question 2

Indifference curve

Answer 2

curve in relation to preference, shows consumption bundles that give consumer same level of satisfaction

Question 3

Marginal rate of substitution

Answer 3

The rate at which a consumer is willing to trade one good for another

Question 4

3 Properties of indifference curves

Answer 4

Higher indifference curves
Downward sloping
Indifference curves do not cross
Bowed inwards - MRS

Question 5

Perfect substitutes

Answer 5

Marginal rate is fixed; indifference curves is straight

Question 6

Perfect complements

Answer 6

Two goods with right angle curves

Question 7

Consumers optimum

Answer 7

Combining indifference curve and budget constraint

Question 8

Where does consumers optimum occur

Answer 8

Consumer optimum occurs at the point where the highest indifference curve and the budget constraint are tangent.