Econ306- chapter 4 outline

Econ306- chapter 4 outline - Chapter 4 ECON306 Individual...

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Chapter 4 ECON306 Individual Demand Price-Consumption Curve- traces the utility maximizing combinations of food and clothing associated with every possible price of food Individual Demand Curve- relates the quantity of a good that single consumer will buy to the price of that good. Has 2 important properties: o The level of utility that can be attained changes as we move along the curve The lower the price of the product, the higher the level of utility o At every point on the demand curve, the consumer is maximizing utility by satisfying the condition that the marginal rate of substitution (MRS) of food for clothing equals the ratio of the prices of food and clothing. Income-Consumption Curve- traces out the utility-maximizing combinations of food and clothing associated with every income level o Slopes upward because the consumption of both food & clothes increases as income increases o Any change in income must lead to the shift in income itself Engel Curves- related the quantity of a good consumed to income
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Econ306- chapter 4 outline - Chapter 4 ECON306 Individual...

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