CHAPTER 21THE THEORY OF CONSUMER CHOICE469±Property 4: Indifference curves are bowed inward.The slope of an indifferencecurve is the marginal rate of substitution—the rate at which the consumer iswilling to trade off one good for the other. The marginal rate of substitution(MRS) usually depends on the amount of each good the consumer iscurrently consuming. In particular, because people are more willing to tradeaway goods that they have in abundance and less willing to trade awaygoods of which they have little, the indifference curves are bowed inward. Asan example, consider Figure 21-4. At point A, because the consumer has a lotof Pepsi and only a little pizza, he is very hungry but not very thirsty. Toinduce the consumer to give up 1 pizza, the consumer has to be given 6 pintsof Pepsi: The marginal rate of substitution is 6 pints per pizza. By contrast, atpoint B, the consumer has little Pepsi and a lot of pizza, so he is very thirstybut not very hungry. At this point, he would be willing to give up 1 pizza to
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This note was uploaded on 07/30/2010 for the course ECON 120 taught by Professor Abijian during the Spring '10 term at Mesa CC.