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Chapter 6

ECO100Y1 Chapter 6 Appendix Notes

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Robert Gazzale

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ECO100Y1 Textbook Notes 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 below it.  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
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