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# Consumption possibilities.docx

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University of Waterloo

Economics

ECON 101

Wokia Kumase

Fall

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Oct 21
CHAPTER 9 Possibilities,preference and choices
Consumption possibilities
Only a change in prices->the budget line will change its slope
Only a change in income->the budget line will swift leftward or rightward,and
the slope of budget line will stay the same
Real Income(the maximum quantity which you can afford with your entire
income)=Income/price of the certain good, showed as the intersects of the
budget line and the x-axis,y-axis
Graphing consumer preferences
(1)Assumptions:
1. Complete: A>B or B>A or A≈B
2. More is better: every good has a positive marginal utility so more goods can
bring more satisfaction to consumers
3. Transitivity: A>B B>C => A>C
(2)Indifference curve(we have so many indifference curves)
Consumers will prefer I3. The area above indifference curves: preferred
The area below indifference curves: not preferred
Using U=(good1)*(good2) to determine the function of indifference curves.
Different utilities have different indifference curves.
(3) properties of indifference curves
1. Indifference curves cannot intersect
Explain: assume that I1 and I2 intersect at point A (x=5,y=2). Then U1=10,
apparently, U1 is not equal to U2. However, if I1 and I2 have intersect, that
means U1=U2,which is a contradiction.
2. There is one and only one indifference curve that passes through each
point.(same as 1)
3. Indifference curves are not thick.(should be a thin line going through each
point)

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