Microeconomics Consumer Choice Quiz

A way to compare costs and benefits of different options, and helps to find the optimal decision, which maximizes net benefit. It means evaluating the additional benefit (marginal benefit) of each additional unit against its corresponding cost (marginal cost). We buy until the marginal benefit equals or exceeds the marginal cost.

In economics, we assume people carefully consider costs and benefits, then choose the action that brings them the greatest net benefit. This means they are 'optimizing' their choices.

The difference between total benefit and total cost. It represents the 'net' gain from a decision.

The benefit from consuming one additional unit of a good. It usually decreases as we consume more.

The cost of producing or acquiring one additional unit of a good.

A model in economics that studies how individuals allocate resources based on their preferences and budget constraints. The model considers multiple goods, their prices, and how those factors influence consumer choices. It allows us to understand how people prioritize their purchases based on their needs and wants.

A decision-making process that involves evaluating the marginal benefit of each unit of a good consumed against its marginal cost. The choice to consume more of a good is driven by the principle of 'marginal benefit exceeds marginal cost'.

A system where the government controls the allocation of resources, determining what goods are produced, how they are produced, and who gets them.

The maximum amount of goods a consumer can purchase given their income and the prices of goods.

The point where the budget line intersects the vertical axis, representing the maximum amount of good 2 a consumer can buy with their income.

The point where the budget line intersects the horizontal axis, representing the maximum amount of good 1 a consumer can buy with their income.

The slope of the budget line reflects the rate at which a consumer must give up one good to obtain one more unit of another good.

The value of what you must give up to obtain one more unit of something else. It is a concept that arises from the scarcity of resources.

The shift of the budget line outwards due to an increase in income. This enables the consumer to purchase more of both goods.

The budget line becomes steeper when the price of good 1 increases, signifying that the consumer must give up more of good 2 to obtain one more unit of good 1.

Factors that limit a consumer's choices, such as income and prices.

The goals and preferences of a consumer, which guide their choices.

The consumer's choice of a specific combination of goods from their budget set that maximizes their satisfaction.

A consumer's budget constraint represents the limit of their spending power, showing all possible combinations of goods they can buy without exceeding their income. It's like a shopping limit!

The budget constraint equation (p1x1 + p2x2 = m) shows the relationship between the prices of two goods (p1, p2), the quantities of each good (x1, x2), and the consumer's income (m). It's a practical way to represent how much you can buy with your money.

A budget set refers to all the combinations of goods that a consumer can afford, including those that don't spend all their income. Imagine a whole area on a graph showing all the possibilities.

The combination of goods that a consumer chooses in the face of their budget constraint, where their expenditure equals their income. It's the most satisfying combination you can buy with your money.

This is the situation where the consumer has chosen the best possible combination of goods for them, given their preferences and budget constraint. They're making the most of their situation.

The consumer's preferences describe what they like and dislike, influencing their choices. It's like their taste guide for different goods.

The idea that consumers choose options that provide them with the greatest satisfaction for their available resources. They aim for the most happiness with their budget.

The 'goods' are the items a consumer can choose to buy. They can be tangible things, like apples and oranges, or experiences like movies or concerts.

The income is the total money available to the consumer for spending. It's like the amount you have to spend in your budget.

A preference ranking is a system for comparing different combinations of goods, indicating which combination is considered better or equivalently good by a consumer.

The assumption that a consumer can always compare two combinations of goods and decide which one they prefer or if they are indifferent.

The assumption that individuals make choices to maximize their satisfaction, based on their preferences.

The assumption that any combination of goods is at least as good as itself. This simply means that a consumer is indifferent between having the exact same combination twice.

A preference ranking represents a comparison between two different combinations of goods. The notation (x1; x2) & (y1; y2) indicates that combination (x1; x2) is preferred to (y1; y2) by the consumer.

The assumption that if a consumer prefers option A to option B, and also prefers option B to option C, then they must prefer option A to option C.

In the notation (x1; x2), x1 represents the quantity of good 1, while x2 represents the quantity of good 2. This can be visualized as a basket containing x1 quantity of good 1 and x2 quantity of good 2.

A curve that shows all the combinations of goods where a consumer is indifferent. This means that they would be equally happy with any combination on the curve.

The notation (x1; x2) ~ (y1; y2) indicates the consumer is indifferent between the combinations (x1; x2) and (y1; y2). This means they consider the combinations equally desirable.

The rate at which a consumer is willing to trade one good for another. It reflects their willingness to give up some of good 2 to get more of good 1.

The notation (x1; x2) ≥ (y1; y2) captures that either combination (x1; x2) is strictly preferred to (y1; y2) OR the consumer is indifferent between the two combinations.

Preferences can be ranked even for combinations that the consumer cannot afford. This is because the ranking reflects the consumer's overall values and desires, regardless of budget limitations.

Preferences are assumed to be transitive, meaning if you prefer A to B and B to C, you must also prefer A to C. This logical consistency ensures that the preference ranking is rational.

Preferences are assumed to be complete, meaning for any two combinations of goods, the consumer can always express whether they prefer one over the other or are indifferent.

Preferences are assumed to be reflexive, meaning a consumer always considers a given combination of goods to be at least as good as itself.