ECON 100A Lecture Notes - Lecture 20: Indifference Curve

16 views2 pages

sapphirecat382

10 Apr 2020

School

Department

Course

Professor

For unlimited access to Class Notes, a Class+ subscription is required.

Document Summary

Lines that connect bundles, which the consumer equally prefers are called indifference. The indifference curves reflect complete, transitive, and non-satiable preferences. Bundles on the indifference curves further from the origin are preferred to those closer to the origin. Draw a straight line from the origin (0,0) to your reference point, and the further out it is from the origin, the more you prefer it because there are more of each goods in that bundle. There is an indifference curve to each possible bundle. Bundles with more of all strictly preferred rules out thick indifference curves. Would violate non-satiation assumption because you would have more of both even if you go up and to the right. However, there are certain kinds of ordering for which that"s not true. If h1 = h2 then rank on basis of r. If both commodities are goods indifference curves are downward sloping.

Related Questions

When deciding consumption levels of more than one good, the utility-maximizing rule states that you are maximizing utility when

		the marginal utility o two goods are equal
		the marginal utility of two goods are zero
		the ratio of marginal utility to price of two goods is zero
		the ratio of marginal utility to price for the two goods are equal

10 points

QUESTION 2

My brother says the law of diminishing marginal utility is nonsense because he is way happier after his sixth beer than after his first one. Pick the best response.

		He has a point, maybe this is something behavioral economists should take a look at.
		True, but marginal utility refers only to the utility gained (or lost) by drinking that last beer, not to his total utility
		There are always exceptions, but in general this law will hold.
		True, but the law of diminishing marginal utility is really just saying that eventually he will prefer a glass of wine to another beer.

10 points

QUESTION 3

Frank spends $75 on 10 magazines and 25 newspapers. The magazines cost $5 each and the newspapers cost $2.50 each. Suppose that his marginal utility from the final magazine is 10 utils while his marginal utility from the final newspaper is also 10 utils. According to the utility-maximizing rule, Frank should:

		Reallocate spending from magazines to newspapers
		Reallocate spending from newspapers to magazines
		Be satisfied because he is already maximizing his total utility
		None of the above

10 points

QUESTION 4

Marginal utility can be:

		Positive, negative, or zero
		Decreasing but not negative
		Positive or negative, but not zero
		Positive, but not negative

10 points

QUESTION 5

In economics, a product provides utility if it:

is useful

violates the law of demand

takes more and more resources to produce successive units of it

satisfies consumer wants

Which of the following is true of an indifference curve?

		Along an indifference curve utility is fixed.
		If a consumer is rational then indifference curves may cross.
		Indifference curves further from the origin are associated with lower levels of utility than those that are closer to the origin.
		Because they are indifference curves, microeconomics students should be indifferent towards them.

budget line

marginal utility

complete property of preferences

market demand

consumption bundle

substitution effect

Giffen good

total effect

income effect

transitive property of preferences

indifference curves

utility

the marginal rate of substitution

utility function

1.	_____	The satisfaction or benefit that consumers receive from consuming goods or services.
2.	________________ _	A particular combination of specific quantities of goods or services
3.	________________ _	Consumers can rank all conceivable bundles of goods or services
4.	_____	If A is preferred to B, and B is preferred to C, then A is always preferred to C.
5.	_____	Equation showing a consumerâs perception of the total utility forthcoming from consuming each bundle of goods and services.
6.	_____	A set of consumption bundles each and every one of which provides a consumer with exactly the same level of total utility.
7.	_____	The number of units of Y that must be given up for total utility to remain the same when one more unit of X is consumed.
8.	_____	The addition to total utility attributable to consuming one more unit of a good, holding the consumption of all other goods constant.
9.	_____	The line showing all bundles of goods that can be purchased at given prices if the entire income is spent.
10.	_____	The change in the consumption of a good that would result if the consumer remained on the original indifference curve after the price of the good changes.
11.	_____	The change in consumption of goods results strictly from the change in purchasing power after the price of a good changes.
12.	________________ _	The sum of the substitution and income effects.
13.	_____	A good for which quantity demanded varies directly with price, causing an upward sloping demand curve.
14.	_____	A list of prices and the corresponding quantity consumers are willing and able to purchase at each price.

blushwildebeest943

A. True, False, Uncertain and Explain: determine whether the statement is true, false or uncertain and explain your reasoning â you only earn points for your explanation. 1. If preferences are convex, the set of points at least as good as any given point is a convex set. 2. If preferences are strictly convex, the set of points âno better thanâ any given point is a convex set. 3. If a consumer has strictly convex preferences over two goods and she is indifferent between bundle A given by (4, 6) and bundle B given by (2, 8), then she prefers bundle C given by (3, 7) over either bundle A or bundle B. 4. If a consumer has preferences over two "bads" then these preferences cannot be convex. 5. If apples (a good) are on the horizontal axis and dirty socks (a bad) are on the vertical axis then the indifference curves that represent convex preferences over these two items is upward sloping and flattens out as moving from left to right. 6. If preferences are not monotonic then they cannot be transitive

ECON 100A Lecture Notes - Lecture 20: Indifference Curve

Document Summary

Get access

Related Documents

ECON 100A Lecture Notes - Lecture 1: Substitute Good, Indifference Curve, Richard Thaler

ECON 100A Lecture Notes - Lecture 1: Topographic Map, Utility, Indifference Curve

ECON 100A Lecture Notes - Lecture 19: Indifference Curve, C More Entertainment, Convex Preferences

Related Questions