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#cfa #cfa-level-1 #economics #has-images #microeconomics #reading-14-demand-and-supply-analysis-consumer-demand #section-3-utility-theory #study-session-4

Consider Exhibit 5 , in which we observe an indifference curve for Smith and one for Warren. Suppose they are initially endowed with identical bundles, represented by a. They each have exactly identical quantities of bread and wine. Note, however, that because their indifference curves intersect at that point, their slopes are different. Warren’s indifference curve is steeper at point a than is Smith’s. This means that Warren’s MRSBW is greater than Smith’s MRSBW. That is to say, Warren is willing, at that point, to give up more wine for an additional slice of bread than Smith is. That also means that Smith is willing to give up more bread for an additional ounce of wine than Warren is. Therefore, we observe that Warren has a relatively stronger preference for bread compared to Smith, and Smith has a relatively stronger preference for wine than Warren.
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