Microeconomics

bundle

a particular combination of two goods

budget constraint

the set of all the bundles that exactly exhausts the consumer’s income at given prices

affordable set

bundles on or below the budget constraint

composite good

the amount of money that the consumer spends on goods other than X

preference ordering

a ranking of all possible consumption bundles in order of preference

indifference curve

a set of bundles among which the consumer is indifferent

marginal rate of substitution

rate at which the consumer is willing to exchange the good measured on the vertical axis for the good measured along the horizontal axis

best affordable bundle

the most preferred bundle of those that are affordable

corner solution

a case in which the consumer does not consume one of the goods

interior solution

a case in which the consumer consumes a poisitive amount of both goods

price-consumption curve

the set of optimal bundles traced on the indifference map as the price of X varies (income and the price of Y constant)

income consumption curve

the set of optimal bundles tranced on an indifference map as income varies (prices of X and Y constant)

engel curve

the relationship between the quantity of X consumed and income

inferior good

one whose quantity demanded falls with a rise in income

normal good

one whose quantity demanded rises as income rises