Read the summary and the most important questions on Microeconomics and Behaviour | 9780077174088 | Robert H. Frank; Edward Cartwright

• 1 Consumer Behaviour I

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• Key properties of an indifference curve

  1. There can be only one indifference curve for each value of U
     
  2. All the bundles above the indifference curve are preferred to those that lie below
  3. indifference curves are downwards sloping (more is better)

• 1.1 The Cost-Benefit Approach to Decisions

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• The reservation price of an activity x is:

  The price at which a person would be indifferent between doing x and not doing x.

• 1.3 Common Pitfalls in Decision Making ( - )

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• What are the four most common pitfalls in decision making?

  Pitfall 1. Ignoring opportunity costs
  Pitfall 2. Failing to ignore sunk costs
  Pitfall 3. Measuring costs and benefits as proportions rather than absolute monetary amounts
  Pitfall 4. Failure to understand the average-marginal distinction.

• What is the opportunity cost of an activity?

  The value of all that must be sacrificed in order to do the activity (therefore you should be able to recognize the most valuable alternative that is sacrificed by the pursuit of a given activity.

• What are sunk costs?

  Costs that are beyond recovery at the time a decision is made and so should be ignored.

• What are marginal costs/marginal benefits?

  The increase in total cost/benefit that results from carrying out one additional unit of an activity.

• 1.5 Would Parents Want Their Daughter or Son to Marry Homo Economicus?

• The so-called Homo economicus only cares about:

  Personal costs and benefits

• 1.6 Positive Questions and Normative Questions

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• What is a normative question?

  A question about what policies or institutional arrangements lead to the best outcomes. Does not have a definite answer.

• 2 Consumer Behaviour II

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• 2.1 Supply and Demand Curves

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• The horizontal interpretation of a demand/supply curve means:

  We start with the price on the vertical axis and read the corresponding quantity demanded/supplied on the horizontal axis.

• The inverse demand/supplu curve (vertical interpretation) of a products tells us:

  The price at which buyers/sellers would demand specific quantities of the product.