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You cannot say that one bundle gives twice as much util-
ity as another, or by how much one bundle is preferred.
Since a consumer chooses the affordable bundle that is
most preferred, only the ordinal properties of a utility
function are important.
Axioms of Consumer Preference
0.5
0.4
0.3
6pack
0.2
0.1
Perfect Substitutes
Indifference curves to the north and east represent higher
utility. If we change the function only by relabeling the
utility values corresponding to the indifference curves, we
do not change the ordinal properties of the preferences.
3
y
2
0 1 2 3 4 5
x
dy
MRSyx = − |du=0 . (1)
dx
MRS and marginal utilities
example: (i) x1/2y 1/2 and (ii) x2y 2 both represent the
same preferences and have the same indifference curves.
(i) ∂u
∂x = (1/2)x−1/2y 1/2, ∂u = (1/2)x1/2y −1/2, and
∂y
y
M RSyx = x .
y
(ii) ∂u
∂x = 2xy 2, ∂u = 2x2y, and MRS
∂y yx = x.
4
x1/2y 1/2 = U and x2y 2 = U are equations for the
same indifference curve.
1
0.8
0.6
u(x,y)
0.4
0.2
0
0 0
0.2 0.2
0.4 0.4
y 0.6 0.6 x
0.8 0.8
11
x1/2y 1/2
1
0.8
0.6
u(x,y)
0.4
0.2
0
0 0
0.2 0.2
0.4 0.4
y 0.6 0.6 x
0.8 0.8
11
x2y 2