ECON 2020 EXAM 3: OPTIMAL CONSUMPTION BUNDLE ANSWERED
COR- RECTLY!!!
1. What do we
the good that gives us the most marginal utility per dollar = MU/P
buy first?
2. Utility
for utility maximization, the consumer must get the same amount of utility
Maximiza- tion
from the last dollar spent on each good
Rule aka Con-
sumer
Equilibrium 1. All income is spent,
2. MUx/Px = MUy/Py
3. Total utility is
max- imized The bundle that maximizes total utility
when
4. Optimal
Consump- tion
Bundle
5. Indifference Curve a line that shows the consumption bundles that yield the same
amount of total
utility
6. Properties of 1. ICs are downward sloping
(Most) Indifference 2. ICs farther from the origin represent a greater level of TU
Curves Dimin- ishing MRS
7. Marginal Rate
of Substitution
(MRS)
8. Principle of
1/
3
COR- RECTLY!!!
1. What do we
the good that gives us the most marginal utility per dollar = MU/P
buy first?
2. Utility
for utility maximization, the consumer must get the same amount of utility
Maximiza- tion
from the last dollar spent on each good
Rule aka Con-
sumer
Equilibrium 1. All income is spent,
2. MUx/Px = MUy/Py
3. Total utility is
max- imized The bundle that maximizes total utility
when
4. Optimal
Consump- tion
Bundle
5. Indifference Curve a line that shows the consumption bundles that yield the same
amount of total
utility
6. Properties of 1. ICs are downward sloping
(Most) Indifference 2. ICs farther from the origin represent a greater level of TU
Curves Dimin- ishing MRS
7. Marginal Rate
of Substitution
(MRS)
8. Principle of
1/
3
