Microeconomics II Week 2 Quiz

A collection of goods that a consumer considers buying.

A set of all possible consumption bundles that a consumer can choose from.

A specific set of prices for each good available in the consumption set.

The total amount of money a consumer has to spend on goods.

The set of all possible consumption bundles that a consumer can afford to buy given their income and prices.

An equation that represents the maximum amount of money a consumer can spend to buy a given bundle while using their entire income.

A straight line that shows all the consumption bundles that can be purchased when the consumer spends all their income.

The negative ratio of the prices of the two goods, representing the rate at which one good can be exchanged for the other.

Preferences are transitive when, if we prefer one option over another, and that second option over a third, we must also prefer the first option over the third.

Rationality in consumer theory means that consumers have consistent and non-contradictory preferences. They know what they like and can rank their choices.

A preference relation is reflexive if a consumer is indifferent between choosing a good and choosing the same good again.

A preference relation is complete if, for any two goods, the consumer either prefers one over the other or is indifferent between them.

If a preference relation is complete, for any two goods, either one is preferred over the other, the other is preferred, or the consumer is indifferent.

Both the strict preference relation and the indifference relation are transitive if the overall preference relation is rational, but neither is complete.

For both the strict preference relation and the indifference relation to be transitive, the overall preference relation must be rational.

Rationality is a crucial assumption in consumer theory because it allows consumers to consistently rank all alternatives and identify the best choice.

A consumer's preference over bundles that specifies which bundles are considered at least as good as others.

Indicates that bundle x is at least as preferred as bundle x0.

Means that bundle x is not at least as preferred as x0.

Means that bundle x is strictly preferred to bundle x0 if x is at least as preferred as x0, and x0 is not at least as preferred as x.

Means that the consumer is indifferent between bundles x and x0 if both are at least as preferred as the other.

A relation that defines which bundles are considered at least as good as others. It's a way to capture a consumer's preferences between different goods and services.

A consumer's preference relation can be represented by different symbols depending on the type of preference. For example, x % x0 indicates that bundle x is at least as preferred as bundle x0. x % / x0 means that bundle x is not at least as preferred as x0. x x0 means that x is strictly preferred to x0. Finally, x ∼ x0 indicates that the consumer is indifferent between the two.

To determine a consumer's preferences, we need to consider the relationship between the bundles and their preference relation. For example, if a consumer has a preference relation % and they prefer bundle x at least as much as bundle x0 (x % x0), it signifies that they are indifferent between x and x0 or they prefer x.

A preference relation where bundles with more of at least one good, and no less of the other, are strictly preferred. If you have more of one good, and at least as much of the other, you definitely like it better.

A preference relation where bundles with more of at least one good, and no less of the other, are weakly preferred, or indifferent. If you have more of one good, and at least as much of the other, you either like it better or are indifferent.

A preference relation where for any chosen bundle, you can always find another bundle nearby which is strictly preferred. You can always get a little bit of that 'extra' you want.

A preference relation where combinations of bundles are weakly preferred to the original bundles. If you combine two equally preferred bundles, you'll get a bundle that's at least as good.

A preference relation where combinations of bundles are strictly preferred to the original bundles. If you combine two equally preferred bundles, you'll get a bundle that's definitely better.

A preference relation that is both strictly monotonic and convex. This is the most common type of preference studied in microeconomics.

The set of all bundles that are indifferent to a given bundle. All bundles on the indifference curve are equally preferred by the consumer.

The graphical representation of a preference relation. It shows the indifference curves for different levels of satisfaction.

A set containing all bundles in R2+ that are considered at least as good as a given bundle x. This includes bundles that are either preferred to x or are indifferent to x.

A set containing all bundles in R2+ that are not better than a given bundle x. This might include bundles that are strictly worse than x or indifferent to x.

A set containing all bundles in R2+ that are strictly preferred to a given bundle x.

A set containing all bundles in R2+ that are strictly worse than a given bundle x.

A set containing all bundles in R2+ that are indifferent to a given bundle x.

The strict preference relation and the indifference relation partition all bundles in R2+ in a way that every bundle belongs to either the 'preferred to' set or the 'indifference' set, and never both. This ensures that every bundle's relationship to a given bundle is clearly defined either as 'preferred' or 'indifferent'.

The 'at least as good' set (%(x)) is equal to the union of the 'preferred to' set ((x)) and the 'indifference' set (∼(x)). This means that all bundles considered at least as good include both those preferred and those indifferent to a given bundle.

The 'preferred to' set ((x)) and the 'indifference' set (∼(x)) are disjoint, meaning they don't share any common bundles. This implies that no bundle can be both 'preferred' and 'indifferent' to a given bundle.

A good that a consumer would prefer to have less of, rather than more. This is seen as something undesirable, unlike typical goods.

Preferences are not monotonic when a consumer prefers less of a good rather than more, and the indifference curves slope upwards.

This occurs when consuming more of a good results in a decrease in satisfaction, even if the consumer has more of it.

When a consumer has a maximum point of satisfaction for goods, beyond which consuming more of the good makes them worse off.

This describes the situation where a consumer prefers less of both goods, leading to indifference curves closer to the origin.

The set of all possible consumption bundles that a consumer prefers over the current bundle (x)

The point where a consumer has reached their maximum satisfaction level, and consuming more leads to lower satisfaction.

Preferences that violate both monotonicity and local non-satiation, meaning a consumer may desire less of a good as they consume more.