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# Micro MT 1

question
Why is the shape of an indifference curve convex?
Preference for a balanced bundle
question
When is the indifference curve linear?
Perfect Substitutes
question
Why do perfect substitutes have a linear indifference curve?
MRS is constant, there is no preference for X or Y
question
What does a diminishing MRS imply?
Downward sloping indifference curve
question
When is the MRS equal to the price ratio?
Optimum point
question
When two goods are perfect substitutes the consumer will...
consume one or the other depending on which one is cheaper
question
Why do we use the method of the Lagrange multipliers?
to turn a constrained maximization problem into an unconstrained maximization problem
question
When is a good not normal or inferior?
When it does not depend on I (income)
question
When is a good either normal or inferior
When it depends on I (income)
question
When is the slope of an indifference curve equal to the MRS?
Always
question
With CES utility, how does an increase in Py affect X?
It depends on the value of σ aka the elasticity of substitution (>1, <1, normal, inferior etc...)
question
Normal good
demand increases as income increases
question
Inferior good
demand decreases when income increases
question
homogeneity
quantities remain unchanged when price and income changes
question
Inelastic demand
increase or decrease in price will not significantly affect demand for the product
question
Elastic demand
changes in price have large effects on the amount demanded
question
unit elastic demand
percent change in quantity demanded is equal to the percent change in price, so the price elasticity is equal to 1 in absolute value
question
Cross price elasticity
change in demand for product A in response to a percentage change in price of product B
1 of 18
question
Why is the shape of an indifference curve convex?
Preference for a balanced bundle
question
When is the indifference curve linear?
Perfect Substitutes
question
Why do perfect substitutes have a linear indifference curve?
MRS is constant, there is no preference for X or Y
question
What does a diminishing MRS imply?
Downward sloping indifference curve
question
When is the MRS equal to the price ratio?
Optimum point
question
When two goods are perfect substitutes the consumer will...
consume one or the other depending on which one is cheaper
question
Why do we use the method of the Lagrange multipliers?
to turn a constrained maximization problem into an unconstrained maximization problem
question
When is a good not normal or inferior?
When it does not depend on I (income)
question
When is a good either normal or inferior
When it depends on I (income)
question
When is the slope of an indifference curve equal to the MRS?
Always
question
With CES utility, how does an increase in Py affect X?
It depends on the value of σ aka the elasticity of substitution (>1, <1, normal, inferior etc...)
question
Normal good
demand increases as income increases
question
Inferior good
demand decreases when income increases
question
homogeneity
quantities remain unchanged when price and income changes
question
Inelastic demand
increase or decrease in price will not significantly affect demand for the product
question
Elastic demand
changes in price have large effects on the amount demanded
question
unit elastic demand
percent change in quantity demanded is equal to the percent change in price, so the price elasticity is equal to 1 in absolute value
question
Cross price elasticity
change in demand for product A in response to a percentage change in price of product B

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