EC120 Lecture Notes - Lecture 7: Demand Curve, Indifference Curve

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3 Oct 2018
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Set of bundles that yield equal satisfaction (or utility) and thus over which the consumer is indifferent. Marginal rate of substitution (mrs) of y for x is the slope of an indifference curve. Mrs is negative to show a consumer willingness to give up good y to get more good x. Diminishing mrs: increase of x and fall of mrs of y for x. Indifference curves further from the origin yield higher satisfaction. Otherwise there would be two values of mrs at the intersection point. Perfect complements are goods which consumers prefer to consumer in fixed proportions. Perfect substitutes are goods with a constant mrs. Indifference curve exercises: bundles a, b and c yield the same level of utility for bob, draw bob. s indifference curve. Find the mrs of pizzas for videos along this indifference curve. D to c: victor is always prepared to give up one pizza to watch video.

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