Thursday

 




Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed.
PART 7 Topics for Further Study
Chapter 21 of 36 The Theory of Consumer Choice
Section 10 of 26
…
Figure 6 – The Consumer’s Optimum
The consumer chooses the point on his/her budget constraint line that lies on the highest indifference curve.
At this optimum point the marginal rate of substitution equals the relative price of the two goods.
Along the budget constraint line the highest indifference curve he can reach is I2.
…
The consumer prefers point A which lies on indifference curve I3.
But he cannot afford this bundle of pizza and Pepsi.
Point B is affordable.
But because it lies on a lower indifference curve he does not prefer B.
The consumer can afford and wants the optimum point which is on I2.
…
At the optimum point
· the indifference curve is tangent to the budget constraint
· the slope of the indifference curve equals the slope of the budget constraint
· the slope of the indifference curve is the marginal rate of substitution between pizza and Pepsi
… …
tangent and not tangent
sessen to hi sessen
接線と非接線

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