ECON-Week-8

ECON-Week-8 - ECONOMICS:Week8 11:41:00...

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ECONOMICS: Week 8 22/10/2007 11:41:00 Consumer preferences: Basics Tool: Indifference Curves X~Y Since they represent different amounts of total utility there different amount of  utility I 2  then there is I 1 . If Both goods are ordinary, then our definition of the indifference curve must  mean that it is negatively sloped. I 2  can yield less TU then I 1  if I 2  is bads. Averages are preferred to extremes
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Any points on or above I are weakly preferred to points  on I 1 Marginal rate of Substitution = - MU 1                                                     MU 2 Total Utility Stays the same
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Budget Line: Tangency Line Slope = -P 1 /P 2  = relative price of good 1 Higher price you get less, that’s why they are inversely related Ex;     Milk      $5         =2 gas relative to price of milk               Gas     $2.50      MU     1     =       MU 2  P 1                  P 2 We prefer point Z to anything else.  All bundles are weakly preffered to z and are  unaffordable.
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ECON-Week-8 - ECONOMICS:Week8 11:41:00...

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