Consumer Behavior for Transition Flashcards (64 cards)

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1Question

What do consumer preferences rank according to satisfaction from consumption?

Answer

Bundles of goods.

2Question

What does completeness require when comparing any two bundles?

Answer

The consumer ranks them as $a \succ b$ , $b \succ a$ , or $a \sim b$ .

3Question

What does transitivity imply when $a \succ b$ and $b \succ c$ ?

Answer

$a \succ c$

4Question

What does an indifference curve represent to a consumer?

Answer

Bundles considered equally desirable that provide the same utility.

5Question

What shape restrictions apply to indifference curves?

Answer

They cannot cross or be thick.

6Question

How do indifference curves slope under the stated assumptions?

Answer

Downward.

7Question

What does utility numerically represent about possible consumption bundles?

Answer

Their relative ranking.

8Question

What does ordinal utility rank without measuring?

Answer

How much more one bundle is valued than another.

9Question

What is marginal utility?

Answer

The additional utility from consuming one more unit while holding other goods constant.

10Question

What is the marginal rate of substitution?

Answer

The maximum amount of one good sacrificed for one more unit of another.

11Question

How is the marginal rate of substitution related to the indifference curve and marginal utilities?

Answer

$MRS=\frac{dq_2}{dq_1}=-\frac{MU(q_1)}{MU(q_2)}$

12Question

How does marginal rate of substitution change along many typical indifference curves convex to the origin?

Answer

It diminishes.

13Question

What characterizes perfect substitutes in consumer preferences?

Answer

The consumer is completely indifferent between them and can trade them at a constant marginal rate of substitution.

14Question

In what proportions are perfect complements consumed?

Answer

They are consumed in fixed proportions.

15Question

What is the two-good budget constraint?

Answer

$p_1q_1+p_2q_2=Y$

16Question

What does the marginal rate of transformation measure in market trade?

Answer

The market rate at which a consumer can trade one good for another.

17Question

Where does the optimal consumer bundle lie given the budget constraint?

Answer

On the highest attainable indifference curve.

18Question

What defines an interior solution in consumer choice?

Answer

The optimal bundle is at a tangency point, with both goods consumed in positive quantities.

19Question

What condition holds between marginal rates at an interior optimum?

Answer

$MRS=MRT$

20Question

How do marginal utilities and prices relate at an interior optimum?

Answer

$\frac{MU(q_1)}{MU(q_2)}=\frac{p_1}{p_2}$

21Question

What optimization problem does the consumer solve under a budget constraint?

Answer

$\max_{q_1,q_2} U(q_1,q_2)\quad\text{s.t.}\quad Y=p_1q_1+p_2q_2$

22Question

What variables determine the consumer’s optimal quantities $q_1^*$ and $q_2^*$ ?

Answer

Prices $p_1$ and $p_2$ and income $Y$ .

23Question

What are the optimal demands under Cobb-Douglas utility $U(q_1,q_2)=q_1^\alpha q_2^{1-\alpha}$ ?

Answer

$q_1=\frac{\alpha Y}{p_1}$ and $q_2=\frac{(1-\alpha)Y}{p_2}$ .

24Question

In Cobb-Douglas demands, what share of income is spent on good 1?

Answer

$\alpha$ .

25Question

In Cobb-Douglas demands, what share of income is spent on good 2?

Answer

$1-\alpha$ .

26Question

What is the interior demand for good 1 under the stated quasilinear utility?

Answer

$q_1=\frac{p_2-p_1}{p_2}$

27Question

When does the stated quasilinear utility yield the corner solution?

Answer

When $p_1\ge p_2$ , with $q_1=0$ and $q_2=\frac{Y}{p_2}$ .

28Question

Which tools can institutions use to directly affect a good’s price?

Answer

Taxes, subsidies, and price reductions.

29Question

What determines how an indirect price effect changes demand for another good?

Answer

Whether the goods are substitutes or complements.

30Question

Which symbol denotes strict preference between bundles a and b?

Answer

$a \succ b$

31Question

Which symbol denotes weak preference between bundles a and b?

Answer

$a \succsim b$

32Question

Which symbol denotes indifference between bundles a and b?

Answer

$a \sim b$

33Question

What does the more-is-better assumption say about more of a good?

Answer

All else equal, more of a good is preferred to less.

34Question

How does the more-is-better assumption differ for a bad?

Answer

For a bad, less is preferred to more.

35Question

Which bundles does an indifference curve pass through?

Answer

Every possible bundle.

36Question

Which bundles are preferred under more-is-better preferences?

Answer

Bundles on curves farther from the origin.

37Question

What does the utility function $U(q_1,q_2)$ assign to quantity bundles?

Answer

Utility measures.

38Question

What does a positive monotonic transformation preserve?

Answer

The preference ordering.

39Question

What is the marginal utility formula for good $q_1$ ?

Answer

$MU(q_1)=\frac{\partial U}{\partial q_1}$

40Question

For perfect substitutes with $U(C,P)=iC+jP$ , what is the marginal rate of substitution?

Answer

$\frac{i}{j}$

41Question

What is the marginal rate of substitution for perfect complements?

Answer

It is undefined.

42Question

Which axes do Cobb-Douglas and quasilinear indifference curves reach?

Answer

Cobb-Douglas curves reach neither axis, while quasilinear curves reach one axis.

43Question

What is the Cobb-Douglas utility function for goods $q_1$ and $q_2$ ?

Answer

$U(q_1,q_2)=q_1^\alpha q_2^{1-\alpha}$

44Question

How can a quasilinear utility function for goods $q_1$ and $q_2$ be written?

Answer

$U(q_1,q_2)=u(q_1)+q_2$

45Question

When consumers cannot save or borrow, what determines their budget?

Answer

Current-period income determines their budget.

46Question

How can the two-good budget line be written with $q_2$ isolated?

Answer

$q_2=\frac{Y}{p_2}-\frac{p_1}{p_2}q_1$

47Question

What is the marginal rate of transformation in terms of prices?

Answer

$MRT=\frac{dq_2}{dq_1}=-\frac{p_1}{p_2}$

48Question

What defines a corner solution in consumer choice?

Answer

The optimal bundle is at a boundary, where the indifference curve is not tangent to the budget line.

49Question

Which methods can solve the consumer’s optimization problem?

Answer

Substitution or the Lagrangian method.

50Question

Under the more-is-better assumption, what happens to the consumer’s budget at the optimum?

Answer

The consumer exhausts the budget.

51Question

In the Cobb-Douglas model, what type of relationship do the goods have?

Answer

They are neither substitutes nor complements.

52Question

In Cobb-Douglas demand, which other good's price does good 1's demand not depend on?

Answer

Good 2's price, $p_2$ .

53Question

How does Cobb-Douglas demand for each good respond to rising income?

Answer

Both quantities rise.

54Question

How does Cobb-Douglas demand for each good respond to a rise in its own price?

Answer

The quantity demanded falls.

55Question

What does Cobb-Douglas utility imply about income shares spent on each good?

Answer

Each good's income share is fixed.

56Question

How does income affect quasilinear demand for good 1?

Answer

It does not affect it.

57Question

How does quasilinear demand for good 2 change with income at an interior solution?

Answer

It increases with income.

58Question

What are the demands for perfect substitutes when $p_1<p_2$ ?

Answer

$q_1=\frac{Y}{p_1},\quad q_2=0$

59Question

What is the optimal quantity of each good under the stated perfect-complements utility?

Answer

$q_1=q_2=q=\frac{Y}{p_1+p_2}$

60Question

What determines how a direct price change affects demand for that good?

Answer

Its price elasticity.

61Question

How can public institutions affect demand by changing income?

Answer

They can increase or decrease income $Y$ .

62Question

What budget line results when $p_1=1€$ , $p_2=2€$ , and $Y=50€$ ?

Answer

$q_2=25-\frac{q_1}{2}$

63Question

What is determined about the quantities of equal-priced perfect substitutes?

Answer

Their quantities are undetermined by the stated solution.

64Question

Why can’t ordinary interior-solution methods be used for the stated special cases?

Answer

The substitution and Lagrangian methods cannot be applied to those perfect-substitute and perfect-complement cases.

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Answer 25 questions on Consumer Behavior for Transition.

1. What do consumer preferences represent when a person compares bundles of goods?

2. A consumer is asked to compare bundles X and Y. Which response pattern satisfies completeness?

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Consumer Behavior for Transition Flashcards (64 cards)

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