ECON101 Chapter Notes - Chapter 9: Indifference Curve

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lemonbeetle804

15 Jun 2018

School

University of Waterloo

Department

Economics

Course

ECON101

Professor

Wokia Kumase

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Chapter 9:

Budget Equation: Y = PxX + PyY

Budget Line Slope: Px/Py

Real Income: Income expressed as a quantity of goods that the household can

afford to buy.

Relative Price: The price of one good divided by the price of another good.

Indifference Curve: A line that shows combinations of goods among which a

consumer is indifferent.

Marginal Rate of Substitution: The rate at which a person will give up good y to

get an additional unit of good x while remaining indifferent. MUx/MUy.

Diminishing Marginal Rate of Substitution: The general tendency for a person to

be willing to give up less of good y to get one more unit of good x, while at the

same time remaining indifferent as the quantity of x increases.

Best Affordable Point: The point where marginal rate of substitution equals

relative price. Also, the point where the budget line intersects the highest

attainable indifference curve. Where MUx/MUy = Px/Py

Demand Curve: The curve formed by the best affordable points created by

different prices.

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Real income: income expressed as a quantity of goods that the household can afford to buy. Relative price: the price of one good divided by the price of another good. Indifference curve: a line that shows combinations of goods among which a consumer is indifferent. Marginal rate of substitution: the rate at which a person will give up good y to get an additional unit of good x while remaining indifferent. Best affordable point: the point where marginal rate of substitution equals relative price. Also, the point where the budget line intersects the highest attainable indifference curve.

Related Questions

19. Suppose good X is measured on the horizontal axis and good Y on the vertical axis. The marginal rate of substitution is best defined as the A) slope of the budget line. rate at which a person gives up good X to get more of good Y and remains indifferent. rate at which a person gives up good Y to get more of good X and remains indifferent. relative price of good Y in terms of good X relative price of good X in terms of good Y. D) E)

23) Good X is measured on the horizontal axis and good Y is measured on the vertical axis. The marginal rate of substitution is A) the relative price of good X in terms of good Y. B) the relative price of good Y in terms of good X. C) the rate at which a consumer will give up good Y to obtain an additional unit of good X while remaining indifferent. D) the rate at which a consumer will give up good X to obtain an additional unit of good Y while remaining indifferent. E) equal to the magnitude of the slope of the budget line.

18. Which of the following statements is false? A) A consumer possesses a preference map. B) An indifference curve is a line that shows combinations of goods among which a consumer is indifferent. C) A consumer has only one indifference curve. D) The marginal rate of substitution is the rate at which a consumer will give up good y to get an additional unit of good x and remain on the same indifference curve. E) If the indifference curve is steep, the marginal rate of substitution is high.

ECON101 Chapter Notes - Chapter 9: Indifference Curve

ECON101 Full Course Notes

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