L4 BUDGET CONSTRAINT SLIDES

# L4 BUDGET CONSTRAINT SLIDES - of the marginal utilities MRS...

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BUDGET CONSTRAINT SLIDES I = income available for expenditure Px = price of one unit of X Py = price of one unit of Y X = quantity of good X consumed Y = quantity of good Y consumed I = Px X + Py Y Y = (I/Py) - (Px /Py) X I/Py is the intercept of the budget line -Px/Py is the slope of the budget line Recall that the MRS equals the ratio

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Unformatted text preview: of the marginal utilities: MRS = [ ∂ U/ ∂ X] / [ ∂ U/ ∂ Y] = MUx/MUy • And the MRS = MUx/MUy = Px/Py • Therefore, MUx/Px = MUy/Py • The extra utility per dollar cost is the same for both goods X Y 16 16 A 8 8 B 10 +2-2 6 X Y 16 16 M X Y A 8 8 16 16 10 20 30 40 X Y 16 16 A 8 8 10 +2-2 6 30 B* +1 11 M M M...
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## This note was uploaded on 04/12/2009 for the course ECON 306 taught by Professor Cramton during the Spring '06 term at Maryland.

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L4 BUDGET CONSTRAINT SLIDES - of the marginal utilities MRS...

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