ECON 101 Lecture Notes - Lecture 4: Net Present Value, Peanut Butter, Chocolate Chip
16 Nov 2016
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Document Summary
Maximum q combinations of 2 or more goods one can buy. Slope = px/py = inverse" p ratio. Marginal u = additional unit of satisfaction per additional unit of an item consumed. When one consumes another unit of an item, the additional utility one receives from that decreases. If the mu becomes negative, the good becomes bad; Ex. if you eat too many candy bars and you become sick negative". Mu/p(item a) > mu/p(item b) = item a is more economical. Indifference curves & utility max (graphically) of goods) that yield the same level of utility for an individual. Indifference curves - a line that shows different combinations of two goods (or bundles. Highest obtainable curve is to the right. Willing to exchange y for x at constant rate regardless of qs of y and x. Example: peanut butter cookies or chocolate chip, ethanol or premium gas. Typically buy all of one and none of the other.
