Economics 1010a1 Chapter 4: Chapter 4 Notes
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The marginal rate of substitution the slope of an indifference curve is the marginal rate of substitution. Marginal rate of substitution measures the willingness of a consumer to trade one good for the other. When indifference curves are steep, consumers are willing to give up a lot of the good on the vertical axis to get a small additional amount of the good on the horizontal axis. The curvature of indifference curves: substitutes and complements. Goods that are highly substitutable are likely to produce indifference curves that are relatively straight. Goods that are complementary will generally have indifference curves with more curvature two goods that are perfect substitutes have indifference curves that are straight lines. When goods are perfect complements, they have l-shaped indifference curves. A good or service that provides a consumer with negative utility. Income = pxqx + pyqy the relative prices of the two goods determine the slope of the budget constraint.