# Shared Flashcard Set

## Details

Econ 302 Chapter 3
Intermediate MicroEconomics
12
Economics
03/04/2013

Term
 Marginal Rate of Substitution (MRS)
Definition
 The rate at which a consumer is willing to substitute one good for another good and still maintain the same level of satisfaction.
Term
 Marginal Rate of Substitution for X with Y (MRSxy)(Definition)
Definition
 The amount of Y a person is willing to give up to get one more unit of X.
Term
 Marginal Rate of Substitution for X with Y (MRSxy)(Formula)
Definition
 –ΔY/ΔX
Term
 Diminishing Marginal Utility
Definition
 As a person gains more units of a good, the value of each new unit is lower than the one before
Term
 Four Assumptions of Indifference Curve Analysis
Definition
 CompletenessMore Is BetterDiminishing Marginal Rate of SubstitutionTransitivity
Term
 Utility Function
Definition
 U = f(X, Y) where X is the amount of good X that you consume, and Y is the amount of good Y that you consume
Term
 Change in Utility (Formula)
Definition
 ∆U=MUx∆X+MUy∆Y
Term
 Budget Line (Formula)
Definition
 PXX + PYY = M (Budget)
Term
 The Market Rate of Substitution
Definition
 The rate at which one good can be exchanged for another at current market prices.
Term
 The Market Rate of Substitution for X with Y (Description)
Definition
 The amount of Y which must be given up in order to get one more unit of X, given a fixed budget and market prices.
Term
 The Market Rate of Substitution for X with Y (Formula)
Definition
 Px/Py
Term
 Utility Maximizing Condition
Definition
 MUx/MUy=Px/Py
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