101-2010-L7

101-2010-L7 - Econ 101 Lecture 7 Consumption and Leisure...

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Unformatted text preview: Econ 101 Lecture 7 Consumption and Leisure Decisions Announcements Hand in PS2 after the class Midterm exam is on Monday, April 26 Chapters 1, 2 (pages 39-59), 3, 4 (pages 102-123) Multiple choice I will post a few sample questions on the web today Indifference curves Higher indifference curves are associated with higher utility: more is always preferred to less As a consequence, indifference curves are downward sloping : if the consumer has less of one good, more of the other is needed to preserve indifference Any combination of any two consumption bundles are always preferred to the original bundles: the consumer likes variety As a consequence, indifference curves are convex : the consumer wants to be compensated with increasing quantities of one good as the other becomes scarcer Marginal Rate of Substitution Leisure, l Consumption, c A B l 1 l 2 c 1 c 2 The rate at which consumer is willing to substitute leisure for consumption by moving from A to B is 1 2 1 2 l l c c--- B A=B The rate at which consumer is willing to substitute leisure for consumption at a point A = B is minus the slope of the indifference curve Marginal Rate of Substitution of leisure for consumption (MRS...
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101-2010-L7 - Econ 101 Lecture 7 Consumption and Leisure...

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