Consumer Choice Notes - 1 211-1 Notes for Week of 1 says...

Info icon This preview shows pages 1–3. Sign up to view the full content.

1 211-1 Notes for Week of 10-6-2014 1) says that the MU per dollar must be the same across goods. If instead MU X /P X > MU Y /P Y , if I shift $1 away from the purchase of Y toward X, total utility drops by MU Y /P Y due to less Y purchased but rises by MU X /P X due to more X purchased. Example: 5 = 10/2 = MU X /P X > MU Y /P Y = 12/4 = 3. If I spend $1 less on Y, ceteris paribus, If spend $1 more on X, ceteris paribus, On net, as a result, 1) is the “slopes condition” and 2) is the budget constraint. Hey….wait a minute. Before we did the calculus, we said that we needed MRS = P X / P Y for the consumer to be maximizing utility. The calculus gave us MU X /P X = MU Y /P Y as the condition. Are these different conditions??? Nope. Proof that MU X /MU Y ≡ MRS : First, here’s a quick reminder of something you learned in, like, 6 th grade… Y f(X) dY dX X An indifference curve is defined to be all points (x,y) such that U(x,y) = U (some level of utility).
Image of page 1

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

2 Happily, this also makes sense intuitively. Example: Y X A Quick Wrap-Up:
Image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.
  • Spring '14
  • EricSchulz

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern