Marginal Utility

the marginal rate of substitution of good y for good x (MRSy,x)

"willingness to trade" along any segment of an indifference curve is the maximum rate at which a consumer would willingly trade units of y for units of x

The MRS at any point on the indifference curve is equal to

(the absolute value of) the slope of the curve at a point when measured at a point the MRSy,x tells is the maximum rate at which a consumer would willingly trade good y for a tiny bit more of good x

utility

A quantitive measure of pleasure or satisfaction obtained from consuming goods and services

indifference map

a set of indifference curves that describe someone's preferences

anything that makes a consumer worse off

decrease utility

the value of MRS

depends on the size of the move we make

to get the slope of the indifference curve

draw a line tangent to the curve at that point, and use the slope of the tangent line

indifference curve slopes downwards

following assumption about preferences that "more is better"

higher indifference curves=

higher utility

anything that makes a consumer better off

raise utility

indifference curves

represents all combinations of two goods that make the consumer equally well off

marginal utility

the change in total utility an individual obtains from consuming an additional unit of a good or service

increase in income and increase in demand for a good mean

the good is normal

someone is as well off as possible when

the indifference curve and the budget line have the same slope -when they touch but do not cross

a rise in income, with no change in prices, leads to a new quantity demanded for each good. whether a particular good is normal (Q increases) or inferior (Q decreases) depends on the individuals preferences as represented on his indifference map.

true

the optimal combination of goods for a consumer is the point on the budget line where an indifference curve is tangent to the budget line

true

the optimal combination of two goods x and y is that combination on the budget line for which MRSy,x=Px/Py

true

you will always prefer any point on a higher indifference curve to any point on a lower one

true

Can we use the MRS as a measure of willingness to trade when the segment shrinks to a point?

yes, using the slope of the indifference curve