WWS 300 Lecture Notes - Lecture 2: Marshallian Demand Function, Utility, Indifference Curve
Allows more or less elastic demand (i. e. , reactive to prices); central in social welfare analysis. We aren"t expected to compute this equation on exams or problem sets. Utility is measured in terms of goods (or money), which is very handy for welfare analysis. When you treat one value as moving and the other as constant. Compute mrs (marginal rate of substitution; slope of indifference curve); compute the relative priority of different people for allocation of resources. Specification of quantities for each good in order to have the best affordable bundle. The line gives you budget possibilities in terms of what you can afford. Where it touches the curve is the best affordable bundle. Something that defines your preference over budget and prices. In some examples, it would be your budget. The maximum utility achievable with a given budget.