Class Notes - 10-5-07

# Class Notes- - Microeconomics Class Notes LOOKUP PRACTICE PROBLEMS FOR THIS SECTION TO MAKE SURE YOU UNDERSTAND B Indifference Curves(I.C Represent

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Microeconomics – Class Notes – 10/5/07 LOOKUP PRACTICE PROBLEMS FOR THIS SECTION TO MAKE SURE YOU UNDERSTAND!!!! B. Indifference Curves * (I.C) – Represent all consumption bundles that yield the same level of utility Example Bundle Q(y) Q(x) Utility A 7 2 100 B 3 4 100 C 1 8 100 D 7 4 120 (See chart in notes) Indifference curves can never cross. The purpose of the indifference curves is: o Combine them to map out max utility? At every point on the indifference curve – there are infinite number of points that give you utility 100. Bowed in towards the origin (for this example) THE SLOPE IS ALSO KNOWN AS THE marginal rate of substitution 2. MARGINAL RATE OF SUBSTITUTION (M.R.S.) The number of units of “y” which the consumer is willing to trade for one more unit of “x” to keep utility constant. o You can get an approximation by calculating “Rise / Run” from graph o To calculate exactly EQUATION: M.R.S = [ Marginal utility (x) / Marginal Utility (y) ]

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## This note was uploaded on 04/15/2008 for the course ECON 100 taught by Professor Stephaniemartin during the Fall '07 term at Allegheny.

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Class Notes- - Microeconomics Class Notes LOOKUP PRACTICE PROBLEMS FOR THIS SECTION TO MAKE SURE YOU UNDERSTAND B Indifference Curves(I.C Represent

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