October 12 Notes

# October 12 Notes - Most indifference curves are convex...

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Most indifference curves are convex toward the origin (bowed IN)- Why? -When an individual has lots of the y good, but not very much of the x good, they are willing to give up lots of the y good to obtain a little of the x good – i.e. the MRS is high – the indifference curve is steep. -When an individual has lots of the x good, but very little of the y good, they are willing to give up lots of the x good to obtain a little of the y good – MRS is low – the indifference curve is steep. When an indifference curve is perfectly straight, and good a is equal to good b, the MRS is one. So if you are indifferent to bundles of Sprite and 7-UP, 10 of one is equal to 10 of the other, and that is equal to 5 of each. Perfect compliments: For example, left shoes & right shoes. This line would be L-shaped- any additional of either doesn’t make you any better off- but based on free disposal, it doesn’t do you any harm. UTILITY FUNCTIONS

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October 12 Notes - Most indifference curves are convex...

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