Chapter 21 - The Theory of Consumer Choice
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16 Terms
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Budget constraint
________: the limit on the consumption bundles a consumer can afford.
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indifference curve
The ________ is tangent to the budget constraint at the optimum.
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time allocation problem
The ________ is a trade- off between leisure and consumption.
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Giffen
________ goods: a good that violates the law of demand.
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Optimum
________: where the indifference curve and the budget constraint touches.
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Relative Price
________: the price of one good compared to another.
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demand curve
The ________ reflects consumption decisions.
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Perfect complements
________: two goods with right- angle indifference curves 21- 3 Optimization: What a Consumer Chooses The Consumers Optimal Choices.
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substitution effect
If the ________ of a higher interest rate is greater than the income effect, savings increase.
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rotational shift
An expansion in consumer opportunities causes a(n) ________.
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21 2 Preferences
________: What a Consumer Wants Representing Preferences with Indifference Curves.
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marginal rate of substitution
The consumer chooses the quantities of the two goods so that the ________ equals the relative price.
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Indifference curves
________ are bowed inward Two Extreme Examples of Indifference Curves.
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consumers demand curve
A(n) ________ is a summary of the optimums and decisions they can make.
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optimum
The ________ is the choice that will bring the most utility.
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substitution effect
If the ________ of a higher interest rate is greater than the ________, savings decrease.