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Chapter 21

Microeconomics chapter 21.docx

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Department
Economics
Course
ECON 200
Professor
Dr.Neri
Semester
Fall

Description
Microeconomics Chapter 21  What the consumer can afford given the income and price of goods  Budget constraint: the limit on the consumption bundles that a consumer can afford.  The rate at which the consumer can trade one good for another. (slope- opportunity cost)  Indifference curve: shows the consumption bundles that give the consumer the same level of satisfaction.  Marginal rate of substitution: the rate at which a consumer is willing to trade one good for another.  Choose the point on the higher indifference curve.  4 properties of indifference curves  Higher indifference curves are preferred to lower ones. (get more)  Indifference curves are downward sloping  Indifference curves do not cross  Indifference curves are bowed inward  Perfect substitutes: two goods with straight line indifference curves  Perfect complements: two goods with right angle indifference curves.  The point at which the indifference curve and the budget constraint touch is called the optimum. (tangent)  Slope of indifference curve is the marginal rate of substitution (consumer)  Slope of the budget constraint is the relative price (market)  Choose where the marginal rate of consumption
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