EC260 Lecture Notes - Indifference Curve, Budget Constraint, Economic Surplus
Document Summary
When modelling consumer choice, assumptions must be made about consumer behaviour including: consumers are rational beings, who seek to maximize individual well-being. Well-being arises from the goods that an individual chooses to purchase with the income that they have available. The marginal rate of substitution - represents the number of units of product y to receive an additional unit of product. X while maintaining the same level of well-being is found by multiplying the slope at a given point on the indifference curve by -1. Utility maximization concept of utility a consumer"s indifference curve show their tastes and preferences. We are able to assign a level of well-being called utility to each available market bundle of goods. The budget line consumers have a budget constraint on how much they can spend in order to maximize their utility from consuming goods. But if it is u0 there will be an effect.
