ECN 104 Lecture Notes - Lecture 10: Indifference Curve, Budget Constraint, Interest Rate
23 Nov 2017
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The slope of the graph is the price ratio. Indifference curve: shows consumption bundles that give that consumer the same level of satisfaction. A,b, and all other bundles on i1 make hurlery equally happy he is indifferent between them. Properties: indifference cruves are downward-sloping: if the quantity of fish is reduces, the quantitiy of mangoes must be increases to keep hurley equally happy, higher indifference curves are preferred to lower ones. I2 is the most desirable: indifference curves cannot cross, indifference curves are bowed inward. Hurley is willing to give up more mangoes for fish if he has few fish, than he has mangoes. Marginal rate of substituion (mrs): the rate at which a consumer is willing to trade one good for another. In the case of perfect substitues , the graph is a straight line. In the case of perfect complements, two goods with right-angle indifference curves. Less extreme cases: close substitues and close complements.
