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Jingxian TA7

# Jingxian TA7 - ECON1110 TA Section 7 Professor Jennifer...

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ECON1110 TA Section 7 Professor Jennifer Wissink TA Jingxian Zheng March 5, 2009 1 Concepts Review 1. Preference " B ": a bundle of goods: specifies exact quantities of all possible goods and services a consumer cares about. " R ": at least as good as: B 0 R B 1 " IN ": indifferent to: B 0 IN B 1 B 0 R B 1 & B 1 R B 0 " P ": Strictly preferred to: B 0 IN B 1 B 0 R B 1 & not B 1 R B 0 3 Assumptions in Preference: More is better than less: B 1 has more of at least one good than B 0 : B 1 R B 0 Transitivity: If B 0 R B 1 and B 1 R B 2 B 0 R B 2 Average bundles are at least as good as extreme bundles. e.g.: Extreme bundles B 0 = (2 X, 0 Y ) , B 1 = (0 X, 2 Y ) , Average bundle of B 0 B 1 is B 2 = (1 X, 1 Y ) , B 2 R B 0 and B 2 R B 1 . 2. Indifference Curve: Connects all of the points that a consumer like equally. 5 Properties of ICs(refer counterexamples in lecture notes): Every bundle lives on some IC. ICs never slope-up (non-positive or negative slope) ICs never cross ICs never "bowed-out" Better bundles are on ICs to north-east 3. Marginal Rate of Substitution (MRS) MRS xy = |slope of IC|=-slope of IC OR MRS xy = 4 Y 4 X X in the horizontal axis and Y in the vertical axis Intuition: To obtain one more unit of X, the units of Y the consumer will give up (think about MOC) MRS xy declines: law of diminishing MRS—-As more of good X is consumed, the rate at which a person is willing to sacrifice good Y (to get more of good X) declines.

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Jingxian TA7 - ECON1110 TA Section 7 Professor Jennifer...

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