ECON1004 Lecture Notes - Lecture 9: Revealed Preference, Indifference Curve, Utility
Document Summary
Mu increase w/ 1 good >> mu decrease w/ other good. Mua/mub = mrs = pa/pb marginal utility is same for each good >> utility maximization (equal marginal principle) Pa/pb = ua/ub = mrs now you can find the mrs even if price isn"t given (or is a variable in your calculations instead of constant) In buying goods x and y, a consumer has utility function u = 1. 5x + 2y and an income of , where good x costs , and good y costs . Find the mrs and the amount of each the consumer would buy if he wanted to maximize his utility budget constraint >> i = pxx + pyy. Lasapeyres index - amount of money needed to purchase past market basket now divided by cost before deals w/ purchases as opposed to preferences usually overstates true cost-of-living index assumes that consumers don"t change consumption patterns.
