Microeconomics 1

What is Abstraction?

The process of simplifying complex real-world situations by focusing strictly on the most critical variables and omitting minor, irrelevant details

What is opportunity cost?

Opportunity cost is the value of the next-best option you give up when you make a choice.

What are ordinal relations?

An ordinal preference relation tells you how someone ranks options: which they prefer, or whether they’re indifferent. It doesn’t measure how much they prefer one option.

For example, A > B> C means A is preferred to B, and B to C. It doesn’t mean A gives twice as much satisfaction as B.

What are the 3 properties of preferences?

Continuous, Transitive, Completeness

What is Monotonicity?

“more is better,” assuming both items are goods. If bundle Y has at least as many burgers and salads as bundle X—and more of at least one—then Y is preferred to X.

What is convexity?

Convexity means a consumer tends to prefer a balanced mix of goods to an extreme bundle, or at least like the mix just as much.

What does an indifference curve show?

An indifference curve shows bundles that give the consumer the same level of satisfaction.

What does it mean if a bundle is a direct revealed preference?

If the consumer chooses X while Ywas also affordable, the choice reveals that they prefer X to Y—or at least consider it just as good. That observed choice is called direct revealed preference.

Difference between WARP and SARP