New User Special Price Expires in

Let's log you in.

Sign in with Facebook


Don't have a StudySoup account? Create one here!


Create a StudySoup account

Be part of our community, it's free to join!

Sign up with Facebook


Create your account
By creating an account you agree to StudySoup's terms and conditions and privacy policy

Already have a StudySoup account? Login here

Week 7 - Day 2 Lecture Notes - Chapter 9

by: Erika Huber

Week 7 - Day 2 Lecture Notes - Chapter 9 Eco 2023

Marketplace > University of Florida > Economics > Eco 2023 > Week 7 Day 2 Lecture Notes Chapter 9
Erika Huber
GPA 4.0

Preview These Notes for FREE

Get a free preview of these Notes, just enter your email below.

Unlock Preview
Unlock Preview

Preview these materials now for free

Why put in your email? Get access to more of this material and other relevant free materials for your school

View Preview

About this Document

Chapter 9: Ordinal Utility 10/5/16 Week 7 - Day 2 Lecture Notes
Principles of Economics: Microeconomics
Mark Rush
Class Notes
ordinal, utility
25 ?




Popular in Principles of Economics: Microeconomics

Popular in Economics

This 12 page Class Notes was uploaded by Erika Huber on Monday October 17, 2016. The Class Notes belongs to Eco 2023 at University of Florida taught by Mark Rush in Fall 2016. Since its upload, it has received 5 views. For similar materials see Principles of Economics: Microeconomics in Economics at University of Florida.


Reviews for Week 7 - Day 2 Lecture Notes - Chapter 9


Report this Material


What is Karma?


Karma is the currency of StudySoup.

You can buy or earn more Karma at anytime and redeem it for class notes, study guides, flashcards, and more!

Date Created: 10/17/16
10/5/16 ECO 2023 Week 7 – Day 2 Lecture Notes Chapter 9: Ordinal Utility Indifference Curves For simplicity, assume the person consumes just two goods:  Jugs of wine  Loaves of bread Quantity of Bread Ask about this Quadrant Better “More Preferred” QB2 QB3 QB Worse Ask about this Quadrant “Less Preferred” QB4 QB1 Quantity of Wine QW1 QW2 QW QW3 QW4 You only care if the person is worse off or better off, not by how much. Indifference Curve  The consumer is indifferent among any combination of goods on an indifference curve.  Same total utility on every point on this curve.  A person’s goal is to get the highest possible indifference curve in order to get the highest possible maximum of utility.  There are an infinite number of points and a certain set of points makes an indifference curve.  There is also an infinite amount of indifference curves, but we will usually just look at one at a time. Quantity of Bread Indifference Curve (IC) Quantity of Wine There is an infinite amount of indifference curves. Quantity of Bread IC3 IC2 IC1 Quantity of Wine Indifference Curves: MRS Marginal Rate of Substitution (MRS):  The magnitude of the slope of an indifference curve. Decreasing Marginal Rate of Substitution:  The MRS decreases moving downward along an indifference curve. Quantity of Bread QB1 When moving from QB1 to QB2, you have so much bread at QB1 and not a lot of wine, so you have to give up a lot of bread to get a little bit of wine. QB2 When moving from QB3 to QB4, you only have a little bit of bread, and a lot of wine, so giving up a small amount of bread will get you a lot of wine. QB3 QB4 Quantity of Wine QW1 QW2 QW3 QW4 Budget Line Price of Wine = PW Price of Bread = PB Quantity of Wine = QW Quantity of Bread = QB Income constraint = Y Budget constraint = Income constraint (PB * QB) + (PW * QW) = Y To simplify this: ????????∗???????? +????????∗???????? = ???? ???????? + ????????∗???????? = ???? ???????? = − ????????∗???????? + ???? ???????? ???????? ???????? ???????? ???????? ???? ???????? ???????? ???? ???????? = − ???????? ∗ ???????? + ???????? ???? = ???????? + ???? In which, m = slope & b = vertical intercept QB ???? ???????? ???????? Slope = − ???????? Budget Line QW Can’t buy anything that lies beyond the budget line. The budget line is the maximum amount of money that you can spend. The budget line depends on the prices of the products and the income that you have. Change in Price QB  When price of bread increases, the budget line rotates inward, forming a flatter line.  When the price of bread decreases, the budget line rotates outward, forming a steeper line. QW Change in the Budget Line  Change in price: o A fall in price rotates the budget line outward. o A rise in price rotates the budget line inward.  Change in income: o A fall in income shifts the budget line inward. o A rise in income shift the budget line outward. QB Change in Price  When price of bread increases, the budget line rotates inward, forming a flatter line.  When the price of bread decreases, the budget line rotates outward, forming a steeper line. QW Change in Income QB  When income increases, the budget line keeps the same slope and shifts outward.  When income decreases, the budget line keeps the same slope and shifts inward. QW Best Affordable Point QB B1 B2 B3 IC4 IC3 B2 IC2 B1 IC1 QW W1 W2 W3 W2 W1  A person can change along a budget line and would want to in order to maximize their utility.  They can continue to change and move up the budget line and it would continue to increase their total utility.  You don’t want to move back to a past indifference curve.  The indifference curve to the most right that is the last IC to the right touching the budget line is the best affordable point. It is best because it is the highest IC and it is affordable because it is on the budget line.  They cannot obtain IC4 because it is not on the budget line.  The higher (most rightward) indifference you are at, the better off you are.  W3 & B3 has the highest total utility. Derive A Demand Curve We use the indifference curve/budget line diagram to determine how a change in price affects the (utility-maximizing) quantity demanded. QB B3 B2 B1 IC3 IC2 IC1 QW W1 W2 W3 QB v QW  We examine just one IC at a time to make it more simple, but there is an infinite amount of indifference curves.  The budget line will change or shift whenever the price of bread, price of wine, or the income changes.  We can derive a demand curve with 3 basic assumptions: o People maximize their total utility. o People can tell if a change makes them better off, worse off, or leaves them the same. o The marginal rate of substitution decreases moving downward along the indifference curve.


Buy Material

Are you sure you want to buy this material for

25 Karma

Buy Material

BOOM! Enjoy Your Free Notes!

We've added these Notes to your profile, click here to view them now.


You're already Subscribed!

Looks like you've already subscribed to StudySoup, you won't need to purchase another subscription to get this material. To access this material simply click 'View Full Document'

Why people love StudySoup

Steve Martinelli UC Los Angeles

"There's no way I would have passed my Organic Chemistry class this semester without the notes and study guides I got from StudySoup."

Jennifer McGill UCSF Med School

"Selling my MCAT study guides and notes has been a great source of side revenue while I'm in school. Some months I'm making over $500! Plus, it makes me happy knowing that I'm helping future med students with their MCAT."

Jim McGreen Ohio University

"Knowing I can count on the Elite Notetaker in my class allows me to focus on what the professor is saying instead of just scribbling notes the whole time and falling behind."

Parker Thompson 500 Startups

"It's a great way for students to improve their educational experience and it seemed like a product that everybody wants, so all the people participating are winning."

Become an Elite Notetaker and start selling your notes online!

Refund Policy


All subscriptions to StudySoup are paid in full at the time of subscribing. To change your credit card information or to cancel your subscription, go to "Edit Settings". All credit card information will be available there. If you should decide to cancel your subscription, it will continue to be valid until the next payment period, as all payments for the current period were made in advance. For special circumstances, please email


StudySoup has more than 1 million course-specific study resources to help students study smarter. If you’re having trouble finding what you’re looking for, our customer support team can help you find what you need! Feel free to contact them here:

Recurring Subscriptions: If you have canceled your recurring subscription on the day of renewal and have not downloaded any documents, you may request a refund by submitting an email to

Satisfaction Guarantee: If you’re not satisfied with your subscription, you can contact us for further help. Contact must be made within 3 business days of your subscription purchase and your refund request will be subject for review.

Please Note: Refunds can never be provided more than 30 days after the initial purchase date regardless of your activity on the site.