ECO204Y5 Lecture Notes - Lecture 4: Demand Curve, Normal Good, Engel Curve
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Last time: extreme preferences lead to (cid:862)corner solutions(cid:863) (all of ft, no p) (graph in notebook) Alternate view of utility-maximizing : mu (marginal utility: mu : the amount of satisfaction/utility gained from consuming an extra unit of good, as you co(cid:374)su(cid:373)e (cid:373)ore a(cid:374)d (cid:373)ore of a good, it"s mu goes do(cid:449)(cid:374) Moving along the ic : between 2 bundles (graph in notebook) (muc c) + (muf f) = 0. Muf / muc = c / f: note: mrs = - c / f and when utility-max : mrs = pf / pc replace c / f (cid:449)ith pf / pc. Muf / muc = pf / pc guarantees utility-max bundle. Rearrange: muf / pp = muc / pc ---> (cid:862)equal margin principle(cid:863) Utility per $ spent on f = utility per $ spent on c. 1 f 4 utils c 4 utils. Pf , while keeping all else constant (pc , i)
