MG207 Purposeful
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34 Terms
Budget Constraint Graphs
Consumption excange ratio
Consumer preferences assumptions; Axioms of consumer theory
Will choose most preferred alt from set of alt, preference relations (strict vs weak vs indifference), completeness, transivity, reflexivity, continuity,
Well behaved preferences
MRS
Changes along curve
Quasi linear function
like increasing it upward when plugged in, partly linear
Cobb douglas indiff set
slope of indiff curve
Slope of quasi linear
Monotonic transformationss
more of a feeling thing, need to spot it
Know how to calc ordinary demand
Identify problem, set system of equations, solve mrs based on problem, solve system using mrs and system of equations
Price offer curve
budget line moves as price changes
cobb douglas ordinary demand functions
Giffen goods curve
engel curve; income offer curve
Solving ordinary demand of perfect compliments
Preffered bundle for perfect compliments; perfect substitutes
subs: corner solutions; comp: min combo
Effects of a price change
subs: parallel move of new line → tangent to old indiff curve, income effect → jump to the new final point
Endowments (impact on budget constraint), Endowment point
always revolve around endowment point regardless of p changes bcs thats when you don’t trade your endowment and just keep it
Slutsky identity
Endowment income effect
Subs, ordinary income, endowment income eff of endowment income effect
When is consumer worse off and better off in change in p with endowment
Worse off when: the new budget line cuts below the old consumption bundle (old bundle no longer affordable). Better off when: the new budget line passes above the old consumption bundle (old bundle still affordable, plus more). Ambiguous when: the consumer flips from net seller to net buyer of the good whose price changed.
intertemporal choice
impacted by inflation and ir
Slope of budget constraint
Changes in r and infla to budget constraint (what happens if revolve around endowment point)
How to find optimal consumption in intertemporal?
find budget constraint, find MRS, find tangent intersection