Chapter 9 Notes

# Preferred not preferred and indifferent an

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Preferred, not preferred, and indifferent An indifference curve is a line that shows combination of goods among which a consumer is indifferent What is the marginal rate of substitution? The marginal rate of substitution (MRS) is the rate at which a person will give up good y (the good measured on the y-axis) to get an additional unit of good x (the good measured on the x-axis) while remaining indifferent (remaining on the same indifference curve) If the indifference curve is steep, the marginal rate of substitution is high. The person is willing to give up a large quantity of good y to get an additional unit of good x while remaining indifferent. If the indifference curve is flat, the marginal rate of substitution is low. The person is willing to give up a small amount of good y to get an additional unit of good x while remaining indifferent. A diminishing marginal rate of substitution is a general tendency for a person to be willing to give up less of good y to get one more unit of good x, while at the same time remaining indifferent as the quantity of x increases What is the degree of substitutability?

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