Microeconomics (5th Edition) - download pdf or read online

By Saul Estrin

ISBN-10: 0273646273

ISBN-13: 9780273646273

ISBN-10: 0273724223

ISBN-13: 9780273724223

ISBN-10: 661207096X

ISBN-13: 9786612070969

Microeconomics caters for all scholars learning the topic, not easy the main capable reader while leaving no scholar at the back of

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Extra resources for Microeconomics (5th Edition)

Sample text

With the movement from B towards A, Y becomes progressively more valuable relative to X and the rate at which the consumer is willing to give up Y in return for X falls. At A the rate at which the consumer is willing to give up Y to get X coincides with the rate at which the price structure permits this substitution to be made. Any movement to the right of A would involve having to give up more Y than is required for the maintenance of a particular level of utility, so further substitution will not be made.

It follows from this that if D is one of a set of bundles of goods among which the consumer is indifferent, such bundles must lie in the areas below and to the right of D and above and to the left of D. 2, a curve that is convex towards the origin. A smooth convex curve is by no means the only formulation of an indifference curve compatible with the assumption of rationality, but it is both intuitively plausible and, as we shall see below, productive of sensible predictions about behaviour. This particular shape involves what is called a diminishing marginal rate of substitution between the goods.

What does change is the intercept on the X-axis and the slope of the constraint. As the price of X increases, less X can be bought for the same money and so the point at which the budget constraint cuts the X-axis moves nearer the origin and the slope becomes steeper. In other words, the slope of the budget constraint is given by the ratio of prices of X to that of Y. Raising the price of X increases this ratio and hence the slope of the constraint. For every price of X there is a preferred consumption bundle and the points representing these may be linked up in a price consumption curve.

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Microeconomics (5th Edition) by Saul Estrin

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