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.
Utility
measure of preferenecs over some set of goods
represents satisfaction experienced by the consumer of a good
the most a consumer would be willilng to pay for x units if alternative were 0 units
quantity
Marginal Value
maximum willing to pay for one more unit
decreases as x increases
Marshall's model of consumer demand
Alfred Marshall (1842 - 1924)
Utility functions
Hicks' model of preferences and utility
Interaction of Utilities
John Hicks (1904 - 1989)
Indifference curves
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
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
scroll
click
