Consumer Optimisation and Comparative Statics

These flashcards cover key concepts from the lecture on Consumer Optimisation and Comparative Statics.

The first method of determining what an individual would choose to buy involves graphing the and curves.

budget line; indifference

In the constrained optimization problem, consumers maximize __ subject to constraints.

utility

Convex preferences imply diminishing marginal rate of substitution; as we go down an indifference curve, the slope becomes __.

flatter

To check if preferences are convex, one needs to ensure that (∂U/ ∂X) / (∂U/ ∂Y) is in X and/or in Y.

decreasing; increasing

When the budget line is tangent to the indifference curve at (X1, Y1) but this is not the optimal bundle, it illustrates the necessity for __ preferences.

convex

The Engel curve shows how much of each good a household would consume at different levels of __.

income

If X and Y both increase with an increase in income, they are considered __ goods.

normal

If consumption of good X decreases as income increases, then X is termed __ good.

inferior

The demand curve depicts how much of good X a household would consume at different __ for good X.

prices

A demand function for good X specifies how much of good X a household chooses to purchase given and of all goods.

wealth; prices