Chapter 6 Appendix
6A.1 Indifference Curves
The consumer is indifferent between the combinations indicated by any two
points on one indifference curve.
Any point above an indifference curve is preferred to any point along that
same indifference curve; any point on the curve is preferred to any point
Marginal rate of substitution (MRS): the amount of one product that a
consumer is willing to give up to get one more unit of another product but
keeping utility the same.
The first basic assumption of indifference theory is that the algebraic value of
the MRS between two goods is always negative.
Any indifference curve becomes flatter as the consumer moves downward
and to the right along the curve because they will be willing to give up less
and less of a scarce product to obtain a plentiful product.
An indifference map consists of a set of indifference curves.
6A.2 The Budget Line
The budget line shows the quantities of goods available to a consumer given
money income and the prices of goods.
The opportunity cost of product Y in terms of prod