Principles of Economics- Mankiw (5th) 456

Principles of Economics- Mankiw (5th) 456 - 470 PA R T S E...

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470 PART SEVEN ADVANCED TOPIC Most likely, you would care only about the total monetary value of each bun- dle. If so, you would judge a bundle based on the number of nickels plus twice the number of dimes. In other words, you would always be willing to trade 1 dime for 2 nickels, regardless of the number of nickels and dimes in the bundle. Your mar- ginal rate of substitution between nickels and dimes would be a fixed number—2. We can represent your preferences over nickels and dimes with the indiffer- ence curves in panel (a) of Figure 21-5. Because the marginal rate of substitution is constant, the indifference curves are straight lines. In this extreme case of straight indifference curves, we say that the two goods are perfect substitutes. Perfect Complements Suppose now that someone offered you bundles of shoes. Some of the shoes fit your left foot, others your right foot. How would you rank these different bundles?
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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.

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