ECON 10010 Chapter Notes - Chapter 21: Giffen Good, Inferior Good, Marginal Utility
Document Summary
People prefer to consumer more (greater q) Higher indifference curve = higher q: property 2: indifference curves are downward sloping. Q of one good is reduced, q of other good is increased: property 3: indifference curves do not cross, property 4: indifference curves are bowed inward. Marginal rate of substitution depends on q of good is currently being consumed. More willing to trade away abundant goods than scarce goods: two extreme examples of indifference curves, perfect substitutes. Indifference curves are straight horizontal lines: perfect complements. Optimization: what consumer chooses: the consumer"s optimal choices, consumer want the combination in highest possible indifference curve, end up on or below budget constraint, optimum point: point where indifference curve and budget constraint touch. Change in consumption that results from the movement to a higher indifference curve: substitution effect: consumer buys the cheaper of the two goods. Budget constraint can become steeper and shifts outward.
