ECON 103 Lecture 2: Econ 103 Lecture 2 Jan 9th.doc
13 Feb 2013
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Mv (marginal value) = max price/amount of the other good a person is willing to sacrifice for and additional unit. Mv = increase in consumers happiness/value from consumption from consuming additional unit. Sally is indifferent between the following consumption baskets (bundles): Bundle a = apples (2) hot dogs (6) Sally is indifferent, so therefore she has no prefference for either bundle. Mv of 3rd apple = the most amount of hot dogs she will sacrifice for that apple. Mv of 3rd apple = 2 hot dogs. Mv of hot dog = 1/2 of an apple. Sally and tamara are indifferent between the following bundles: Sally: mv of 10th apple = 5 hot dogs. Mv of 11th apple = 4 hot dogs. Tamara: mv of 6th apple = 2 hot dogs. Mv of 7th apple = 1 hot dogs. Since mv"s of apples are different, they can gain from trade.
