#cfa #cfa-level-1 #economics #microeconomics #reading-14-demand-and-supply-analysis-consumer-demand #section-3-utility-theory #study-session-4
We capture this willingness to give up one good to obtain a little more of the other in the phrase
marginal rate of substitution of bread for wine, MRS
BW. The MRS
BW is the rate at which the consumer is willing to give up wine to obtain a small increment of bread, holding utility constant (i.e., movement along an indifference curve).
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3. UTILITY THEORY: MODELING PREFERENCES AND TASTESin Exhibit 2 is characteristically drawn to be convex when viewed from the origin. This indicates that the willingness to give up wine to obtain a little more bread diminishes the more bread and the less wine the bundle contains.
<span>We capture this willingness to give up one good to obtain a little more of the other in the phrase marginal rate of substitution of bread for wine, MRS BW . The MRS BW is the rate at which the consumer is willing to give up wine to obtain a small increment of bread, holding utility constant (i.e., movement along an indifference curve). Notice that the convexity implies that at a bundle like a′′, which contains rather a lot of wine and not much bread, the consumer would be willing to give up a considerable amount of wi Summary
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