ECON 1B03 Study Guide - Final Guide: Marginal Utility, Budget Constraint, Indifference Curve
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ECON 1B03 Full Course Notes
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Chapter 21 the theory of consumer choice. Budget constraint the limit on the consumption bundles that a consumer can afford. Slope of budget constraint measures the rate at which the consume can trade one good for the other. Marginal rate of substitution (mrs) the rate at which a consumer is willing to trade one good for another. 4 properties of indifference curve: high indifference curves are preferred to lower ones - people prefer more than less. Indifference curves are downward sloping one item increase and the other one increase. Indifference curves do not cross contradicts the assumption that consumers prefer more of both goods. Indifference curves are bowed inward reflects the consumer"s greater willingness to give up a good that he already has in large quantity. When goods are easy to substitute for each other, the indifference curves are less bowed. When goods are hard to substitute, the indifference curves are very bowed.