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Lecture 2

Econ 103 Lecture 2 Jan 9th.doc

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Simon Fraser University
ECON 103
Iryna Dudnyk

- MV (marginal value) = max price/amount of the other good a person is willing to sacrifice for and additional unit - MV = increase in consumers "happiness"/value from consumption from consuming additional unit. MV and Indifference -Sally is indifferent between the following consumption baskets (bundles): Bundle A = Apples (2) Hot Dogs (6) Bundle B = A (3) HD (4) -Sally is indifferent, so therefore she has no prefference for either bundle -Suppose she holds bundle A - MV of 3rd apple = the most amount of hot dogs she will sacrifice for that apple - MV of 3rd apple = 2 hot dogs - MV of Hot Dog = 1/2 of an apple MV and Trade -Sally and Tamara are indifferent between the following bundles: Sally: Tamara: A HD A HD 9 13 5 17 10 8 (start) 6 15 (start) 11 4 7 14 Q.1 Should they trade or "eat" their baskets? -Sally: MV of 10th apple = 5 hot dogs MV of 11th apple = 4 hot dogs -Tamara: MV of 6th apple = 2 hot dogs MV of 7th apple = 1 hot dogs Since MV's of apples are different, they can gain from trade. Ans. 1. Sally should "buy" apples from Tamara. => Sally gets her 11th apple. => Tamara sells 6th apple Q.2 What are acceptable pr
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