Marginal rate of substitution: MRSx,y = |dy/dx| = MUx/MUy
Special goods: bads, satiation, extreme, lexicographic (Fig. 3-2)
(eg) Complements: Coffee and Sugar, Fries and Ketchup
(eg) Substitutes: Cell phone v. Pay phoneOptimal choice: MRSx,y = Px/Py (tangency) (Fig. 3-3)
Therefore: MUx/Px = MUy/Py (equal MU per dollar spent)
Comparative statics:
Income change effect: Engle curve (normal v. inferior) (Fig. 3-4)
(eg) Movie (inferior) v. Concert (normal)
(eg) Local parks (inferior) v. Beach resorts (normal)
Price change effect: ordinary v. Giffen (Fig. 3-5)
Pure exchange economy: 2 consumers (A and B), 2 goods (X and Y)