Consumer and Firm Behaviour: Wage setting (Lecture 1)

Utility

A measure of how satisfied the consumer is with their choices

How is consumer preference represented?

U(C,l)

What is the consumers problem?

To choose the combination of consumption and leisure that gives them the greatest satisfaction, subject to their available time and income

What are the three assumptions about preferences?

1. More is preferred to less

2. The consumer likes variety

3. Consumption and leisure are normal goods

What is an indifference curve?

A curve that shows all the combinations of consumption and leisure that give the consumer the same level of utility

How is an indifference curve written?

What does this mean

A fixed level of utility

Why do indifference curves slope down?

MRS meaning

a measure of how much consumption a consumer is willing to give up to obtain one additional unit of leisure whilst keeping utility constant

MRS formulae

Why does MRS decrease along the indifference curve?

As consumer gains more leisure they become less willing to sacrifice large amounts of consumption for even more leisure. Due to the assumption that consumers like variety so sacrificing consumption leads to less variety

What are the two consumer constraints?

1. Budget constraint

2. Time constraint

What is dividend income?

The income recieved from ownership of firms or other dividend-paying assets