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Supply, Demand and other Microeconomics concepts

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Solution Summary

How MRS changes on indifference curves; utility; supply and demand; and market equilibrium are discussed.

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1. Elasticity is defined as the percentage change in quantity divided by the percentage change in price. So when quantity increases proportionately greater than price, the curve is elastic. This occurs in the upper portion of the graph, because price is high there, so a change in price from P4 to P3 is proportionately less than a change in quantity from Qa to Qb. Likewise, the lower part of the graph is inelastic.

2. Utility is an economic term that is used to describe the increase in a person's well-being, or perceived happiness, from a transaction. Utility is therefore a quantitative measure of the value of an outcome. All rational decision makers want to maximize their relative ...

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