ECON 1050 Chapter Notes - Chapter 8: Indifference Curve, Opportunity Cost, Divisor

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3 Dec 2017

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Recall: budget line determines what is affordable and what is not. Divisible and indivisible goods - goods that can be bought at any quantity (divisible). Expenditure - the total sum of the price of each good multiplied by the quantity bought. Real income - a households income expressed as the quantity of goods that the household can afford. Relative price - price of one good divided by the price of another good. It is also the slope of the budget line, as well as opportunity cost. Change in the price of a good changes slope of the budget line. Change in income shifts the budget line, slope remains the same. Indifference curve - a line that shows the different combinations of goods among which a consumer is indifferent. Preference map - a series of indifference curves. Anything below the indifference curve is not preferred. The consumer is indifferent about any point on the indifference curve.

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14) At the best affordable point, which statement is true? A) The marginal rate of substitution between two goods equals their absolute price. B) Other points on the same indifference curve are affordable but not preferred. C) The slope of the indifference curve equals the slope of the budget line. D) The highest affordable indifference curve has the same intercept as the budget line. E) Some income is not spent.

25) At the best affordable point, which statement is true? A) The slope of the indifference curve equals the slope of the budget line. B) The marginal rate of substitution between two goods equals their absolute price. C) The highest affordable indifference curve has the same intercept as the budget line. D) Other points on the same indifference curve are affordable but not preferred. E) Some income is not spent.

10) At the best affordable point, which statement is true? A) The marginal rate of substitution between two goods equals their absolute price B) Other points on the same indifference curve are affordable but not preferred C) The slope of the indifference curve equals the slope of the budget line. D) The highest affordable indifference curve has the same intercept as the budget line. E) Some income is not spent

ECON 1050 Chapter Notes - Chapter 8: Indifference Curve, Opportunity Cost, Divisor

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