EC120 Lecture Notes - Lecture 7: Demand Curve, Inferior Good, Normal Good

40 views1 pages
10 Apr 2018
School
Department
Course
Professor
carminegrasshopper545 and 38337 others unlocked
30
Verified Note
30 documents

Document Summary

Midterm: chapter 3: elasticity, economic surplus and consumer surplus and ppf. Budget constraints- gi(cid:448)e(cid:374) a(cid:374) a(cid:373)ou(cid:374)t of (cid:373)o(cid:374)ey (cid:449)hat are a co(cid:374)su(cid:373)er"s optio(cid:374)s. Indifference curve, how do co(cid:374)su(cid:373)er"s co(cid:373)pare their optio(cid:374)s: represent options seen as equally good by a consumer. Budget constraints identify feasible options for consumers. Indifference curves represent combinations of goods that are valued equally, Consumers value all bundles on the same indifference curve equally. Slope of the curve marginal rate of substitution: rate at which a consumer is willing to trade goods off against each other. Graphing indifference curves: we assume more of each good is preferred, the curves are downward sloping, curves are bowed inward, curves do not cross. Consumer choice is an example of constrained optimization. Indifference curve is tangent to the budget constraint: slopes of the two lines are equal, at the optimum marginal rate of substitution equals the relative price, trade-off by consumers equals trade-offs in the market.