Log in
HomeClass Notes1,200,000CA670,000

ECON 120W Lecture Notes - Lecture 7: Normal Good, Inferior Good, Indifference Curve

27 views2 pages
School
University of Waterloo
Department
Economics
Course
ECON 120W
Professor
Dr.Jackson

For unlimited access to Class Notes, a Class+ subscription is required.

Document Summary

A consumer maximizes total utility when choosing more of one good and less of another no longer increase utility. A set of indifference curves that have different levels of utility is known is an indifference curve map. If the price of good a rises, other things being constant, then the marginal utility per dollar is worth of good a falls. The straight line is the budget line, the curve line is the total utility line: where the tangent of curve line and straight line is the customer equilibrium. If the marginal rate of substitution of good x for good y is 3, this means that you will be willing to give up 3 units of y to get an additional unit of x, holding utility constant. Diamond have a higher price than water because the price reflects marginal, not total, utility. Marginal rate of substitution is the value of the slope of the consumer"s indifference curve.

Get access

Grade+
$40 USD/m
Billed monthly
Grade+
Homework Help
Study Guides
Textbook Solutions
Class Notes
Textbook Notes
Booster Class
10 Verified Answers
Class+
$30 USD/m
Billed monthly
Class+
Homework Help
Study Guides
Textbook Solutions
Class Notes
Textbook Notes
Booster Class
7 Verified Answers

Related Documents

ECON 120W Lecture Notes - Lecture 10: Technological Change, Outsourcing, Average Variable Cost
raspberryrabbit779
ECON 120W
Final Exam
Study Guide
ECON 120W Study Guide - Midterm Guide: Natural Resource, Predatory Pricing, Interest Rate
cerisegiraffe538
ECON 120W Lecture Notes - Lecture 6: Utility, Economic Surplus, Equilibrium Point
raspberryrabbit779

Related Questions

For the following utility function,


* Find the marginal utility of each good.


* Determine whether the marginal utility decreases as consumption of each good increases (i.e., does the utility function exhibit diminishing marginal utility in each good?).


* Find the marginal rate of substitution..


* Discuss how MRSxy changes as the consumer substitutes X for Y along an indifference curve.


* Derive the equation for the indifference curve where utility is equal to a value of 100.


* Graph the Indifference curve where Utility is equal to a value of 100.


a. U(X,Y) = 5X + 2Y


b. U(X,Y) = X^0.33 Y^0.67


c. U{X,Y) = 10X^0.5 + 5Y

To maximize​ utility, consumers choose a consumption bundle:

A. where the slope of the budget constraint is equal to the ratio of the good price on the horizontal axis divided by the price of the good on the vert axis (multiplied by minus one).

B. on the highest indifference curve given the budget constraint.

C. where indifference curves intersect one another. 

D. where the marginal utility of each product is maximized. 

E. where the slope of the highest indifference curve is equal to the marginal rate of substitution

20) When a consumer's marginal rate of substitution between X and Y is equal to the ratio of prices for X and Y, and when the consumer is spending all available income, then A) the budget line is tangent to an indifference curve. B) the consumer is not maximizing his utility. C) a higher indifference curve can be reached given the existing budget line. D) the budget line is tangent to the indifference curve at all quantities of X and Y. E) all budget lines are tangent to all indifference curves.