ECON100A_3 - MarginalUtility u x y MU(x,y)= x x How much...

Info icon This preview shows pages 1–7. Sign up to view the full content.

View Full Document Right Arrow Icon
 1/4/2008 1 Marginal Utility MU x (x,y)= : How much utility you get from one more unit of x. Depends on x,y and utility function MU y (x,y)= Example: U(x,y)=x 2 +y . MU x (1,2)= : A. 1 B. 2 C. 4 x y x u ) , ( y y x u ) , (
Image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
 1/4/2008 2 Diminishing Marginal Utility Utility function exhibits diminishing marginal utility for good x if and only if x ↑→ MU x (x,y) Example: U(x,y)=xy . MU x (x,y)=y Does this exhibit diminishing marginal utility for good x? A. Yes B. No C. Can’t tell
Image of page 2
 1/4/2008 3 MRS and Marginal Utility MU x (x,y)= : How much utility you get form one more unit of x. Depends on x,y and utility function MRS(x,y)= If you gave up a unit of x, how much y you would need to be has happy as before Relationship: x y x u ) , ( u u dx dy = y) (x, mu y) (x, mu y) MRS(x, y x - =
Image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
 1/4/2008 4 Proof Recall MRS is slope of indif curve at (x,y) In the limit Slope of indif curve is negative, but we usually take MRS as abs value of slope. (Usually drop negative sign). X Y x mu y mu u x y + = x mu y mu x y + = 0 x mu y mu x y - = y x u u mu mu x y = - = y) (x, mu y) (x, mu y) MRS(x, y x - =
Image of page 4
 1/4/2008 5 Another way to do it Say mu x =3, mu y =4. You lose a unit of x, how much utility do you lose? mu x (You lose 3 utils) How much y do you need get one more util? 1/mu y (you need ¼ of a unit of y to get 1 util) How many units of y does it take to get back 3 utils? (This is the MRS) mu x (1/mu y )=3 (¼) =3/4 4 / 3 ) ( y) (x, mu y) (x, mu y) MRS(x, y x - = - =
Image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
 1/4/2008 6 Utility and Hypothesis of Diminishing  MRS Recall definition: The more X you have (and the less Y) the less you need to be compensated for giving up one unit of X. (Indif curves get flatter as you down them.) NOT THE SAME THING AS DIMINISHING MARGINAL UTILITY!
Image of page 6
Image of page 7
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern