Ordinal Utility Theory, Indifference Curves, and the Marginal Rate of Substitution

Vocabulary flashcards covering the properties of indifference curves, the marginal rate of substitution (MRS), its derivation via marginal utility, and special indifference curve shapes from Grade 11 Economics.

Indifference Map

A collection or family of indifference curves representing different levels of satisfaction, where curves further away from the origin denote higher utility.

Factors Determining Achievable Indifference Curve

The consumer's income and the prices of the goods, which determine the specific indifference curve that a consumer can achieve at a given time under a budget line.

Negative Slope of an Indifference Curve

The downward-sloping property reflecting that the consumption level of one commodity can be increased only by reducing the consumption level of another commodity to maintain a constant level of total utility.

Non-Intersection Property of Indifference Curves

The principle that indifference curves cannot cross each other because an intersection would imply two different levels of satisfaction from a single combination of goods, thereby violating the transitivity rule.

Convexity to the Origin

The characteristic of standard indifference curves where the absolute slope decreases when moving downward from left to right, indicating that commodities can substitute for one another but are imperfect substitutes.

Marginal Rate of Substitution ($MRS_{X,Y}$)

The number of units of commodity $Y$ that must be given up in exchange for an extra unit of commodity $X$ so that the consumer maintains the same level of satisfaction.

$$MRS_{Y,X}$$

The notation specifying the amount of good $X$ that a consumer is willing to give up in order to obtain one additional unit of good $Y$ while remaining on the same indifference curve.

Slope of an Indifference Curve

The rate of substitution given by $\frac{\Delta Y}{\Delta X}$, which equals $-MRS_{X,Y}$ and is represented geometrically by the slope of the tangent line at any point on the curve.

Diminishing Marginal Rate of Substitution

The economic tendency for $MRS$ to decrease as a consumer moves downward to the right along an indifference curve, because possessing more of good $X$ reduces its marginal utility while possessing less of good $Y$ increases its marginal utility.

Utility Constant Condition

The equation $MU_X \times \Delta X + MU_Y \times \Delta Y = \Delta U = 0$, stating that the gain in utility from consuming more of good $X$ is exactly offset by the loss in utility from consuming less of good $Y$ along an indifference curve.

Marginal Utility Expression of $MRS$

The mathematical formulation of the marginal rate of substitution in absolute value terms as the ratio of marginal utilities: $MRS = \frac{MU_X}{MU_Y}$.

Standard Indifference Curve

An indifference curve that is downward sloping and convex to the origin, representing consumer choice between goods that exhibit imperfect substitutability.

Perfect Substitutes

Commodities that can be substituted for one another at a constant rate, resulting in a straight-line indifference curve with a negative slope and a constant $MRS$.