Consumer Demand Theory - Tools

What is a budget constraint?

All possible consumption bundles the consumer can afford with her income.

What is a consumption bundle?

A bundle that contains different quantities of various goods the consumer would like to consume.

Define utility

Satisfaction consumer derives from purchasing a particular consumption bundle.

Describe the assumptions the consumer demand theory makes regarding utility.

Completedness - bundles can be ranked in terms of their utility.

Transitivity - utility ranking from bundles is internally consistent.

Preference for more to less

Describe the assumption that leads to the indifference curve.(review graphs)

In order to hold utility constant, diminishing quantities of a good or service need to be sacrificed so as to obtain successive equal increases in the quantity of another good