🧾 Consumers' Optimal Bundle Choice
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7 Terms
Q: What is the budget constraint?
The set of bundles a consumer can afford: PxX+PyY=I
Px = Price of good x
x = quanity of good x you buy
Y = same
I = total income or budget
Q: What is the condition for the optimal bundle?
A: Equal marginal utility per dollar: MUx/Px=MUy/Py
Q: What does utility maximization mean?
A: Choosing the bundle that gives the most utility within a budget.
Q: What is the "bang for your buck" condition?
A: Spending should equalize MU per dollar across goods.
Q: What is expected utility?
A: The probability-weighted utility of uncertain outcomes.
Q: What is risk aversion?
A: Preference for certain outcomes over risky ones with the same expected value.
Q: What is a risk premium?
A: The amount a person would pay to avoid risk (expected payoff − certainty equivalent).
Note 
Flashcards (106)