ECN 212 Study Guide - Midterm Guide: Economic Equilibrium, Budget Constraint, Fixed Cost
Document Summary
Can use income on one good or another. All combinations of two goods (consumption package) a consumer can potentially purchase with their income (p1xq1) + (p2xq2) = income. A point to the right of the budget constraint represents a consumption package unaffordable to the consumer. Indifference curve: shows consumption bundles that give the consumer the same level of satisfaction. Higher indifference curves are preferred to lower ones. Each bundle on a higher curve is preferred to a point on a lower indifference curve. Opportunity costs change at different parts of an indifference curve. Exception: when the goods are perfect complements the indifference curve is a right angle. When the goods are perfect substitutes the indifference curve is linear. The rate at which a consumer is willing to trade one good for another. Mrs = slope of the indifference curve. The point at which a consumer is most satisfied. Intersection of budget constraint and highest indifference curve.
