Marginal Rate of Substitution
Rate at which a consumer is ready to give up one good in exchange for another good while maintaining the same level of utility.
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Utility
measure of preferenecs over some set of goods
represents satisfaction experienced by the consumer of a good
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the most a consumer would be willilng to pay for x units if alternative were 0 units
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quantity
Marginal Value
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maximum willing to pay for one more unit
decreases as x increases
Marshall's model of consumer demand
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Alfred Marshall (1842 - 1924)
Utility functions
Hicks' model of preferences and utility
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Interaction of Utilities
John Hicks (1904 - 1989)
Indifference curves
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connects points on a graph representing different quantities of two goods, points between which a consumer is indifferent
the consumer has no preference for one combination or bundle of goods over a different combination on the same curve
Nonsatiation
Consumers prefer more to less
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A is preferred to B or C because the combination of shakes and pizzas provides the greatest utility
Decreasing MRS
Nonsatiation implies downward sloping of indifferent curves

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