Chapter Three at Hamburg School Of Business Administration | Flashcards & Summaries

# Lernmaterialien für Chapter Three an der Hamburg School of Business Administration

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Utility

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Numerical score representing the satisfaction that a consumer gets from a given market basket.

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Maximizing Market Basekt

Two Conditions

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1. It must be located on the budget line

2. It must give the consumer the most preferred combination of goods and services

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Theory of Consumer Behavior

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1. Consumer Preferences

2. Budget Constraints

3. Consumer Choices

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Convexity

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• MRS falls as we move down the indifference curve

-> diminishing marginal rate of substitution

• when the MRS diminishes along an indifference curve, the curve is convex
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Good for which less is preferred rather than more.

i.e.: air pullution

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Ordinal Utility Function

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Utility Function that generates a ranking of market baskets in order of most to least preferred.

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Cardinal Utility Function

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Utility function describing by how much of one basket is preferred to another.

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Marginal cost

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Cost of one addition unit of a good.

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Marginal Utility

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3. More is better than less

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Goods are assumed to be desirable

• consumers always prefer more of any good to less
• consumers are never satisfied
• more is always better, even if just a little better
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Budget Constraints

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Constraints that consumers face as a result to limited incomes.

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1. Completeness

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• Preferences are assumed to be complete
• Consumers can compare and rank all possible baskets:
• prefer A to B
• prefer B to A
• will be indifferent

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## Beispielhafte Karteikarten für deinen Chapter Three Kurs an der Hamburg School of Business Administration - von Kommilitonen auf StudySmarter erstellt!

Q:

Utility

A:

Numerical score representing the satisfaction that a consumer gets from a given market basket.

Q:

Maximizing Market Basekt

Two Conditions

A:

1. It must be located on the budget line

2. It must give the consumer the most preferred combination of goods and services

Q:

Theory of Consumer Behavior

A:

1. Consumer Preferences

2. Budget Constraints

3. Consumer Choices

Q:

Convexity

A:
• MRS falls as we move down the indifference curve

-> diminishing marginal rate of substitution

• when the MRS diminishes along an indifference curve, the curve is convex
Q:

A:

Good for which less is preferred rather than more.

i.e.: air pullution

Q:

Ordinal Utility Function

A:

Utility Function that generates a ranking of market baskets in order of most to least preferred.

Q:

Cardinal Utility Function

A:

Utility function describing by how much of one basket is preferred to another.

Q:

Marginal cost

A:

Cost of one addition unit of a good.

Q:

Marginal Utility

A:

Q:

3. More is better than less

A:

Goods are assumed to be desirable

• consumers always prefer more of any good to less
• consumers are never satisfied
• more is always better, even if just a little better
Q:

Budget Constraints

A:

Constraints that consumers face as a result to limited incomes.

Q:

1. Completeness

A:
• Preferences are assumed to be complete
• Consumers can compare and rank all possible baskets:
• prefer A to B
• prefer B to A
• will be indifferent

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