ECO204Y5 Lecture Notes - Lecture 4: Demand Curve
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Suppose the following: at bundle a, the mrsa = 1, (pf/pc) = . Mrs = slope of ic and mrsa = 1: willing to give up one coconut in order to gain one fish, with utility remaining constant thereby keeping me on the same ic. Pf/pc = : (cid:272)o(cid:272)o(cid:374)uts a(cid:396)e t(cid:449)i(cid:272)e as e(cid:454)pe(cid:374)si(cid:448)e as fish, it"s a (cid:396)atio. Combining the two: you are willing to trade off 1-for-1 and remain just as happy, but for every coconut you give up, the money you save, you can afford 2 fish. Consumer at bundle a has an incentive to move away from bundle a (contains too many coconuts, too few fish) by giving up coconuts in order to gain more fish -> utility increases. Continue to give up c until mrs falls to equal pf/pc -> stop when mrs = pf/pc bundle c. Why is bundle b not the max utility point.
