ECON 1B03 Chapter Notes - Chapter 21: Indifference Curve, Budget Constraint
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ECON 1B03 Full Course Notes
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The budget constraint: what the consumer can afford. Budget constraint: the limit on the consumption bundles that a consumer can afford (the tradeoff) Slope signifies what is given up of one good to get some of another good = relative price. The consumer can choose between 2 bundles of goods with the amount of money they have, if each meets their tastes equally the consumer is indifferent between the 2 bundles. Indifference curve: shows consumption bundles that give the consumer the same level of satisfaction. Marginal rate of substitution (mrs): the rate at which a consumer is willing to trade one good for another (not always the same since the line is a curve) Higher indifference curves are always preferred to lower curves (consuming more) 1) higher indifference curves are preferred to lower ones: people prefer more of something to less of it, therefore the higher curve represents a greater quantity the consumer receives.