New answers tagged utility
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Pairwise MRS
The Marginal Rate of Substitution is usually defined as a pairwise thing. E.g., in case of three goods $x,y$ and $z$, you would have
$\text{MRS}_{xy}, \text{MRS}_{xz}$ and $\text{MRS}_{yz}$. (And you could also flip any of these, i.e. $\text{MRS}_{yx}$.)
These are defined as the slope of the tangent line of the two dimensional indifference curve ...
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To expand on @1muflon1's answer. The theory of rational addiction assumes that the utility of a consumer at time instance $t$ depends both on current consumption of the addicitve good, say $c_t$, and the consumption of the addictive good in the past. For simplicity say $c_{t-1}$. So at period $t$ the instantaneous utility looks something like:
$$
u(c_t, c_{t-...
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It is possible for an addict to be rational. A famous work on this was done by Becker (1988) Theory of Rational addiction.
In order for agent to have rational preferences the preferences have to satisfy the following definition (See MWG Microeconomic Theory pp 6):
Definition 1.B.1: The preference relation $\succeq$ is rational if it possesses the following ...
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No, it is not. The verbatime citation is The slope of this curve represents the rate at which the individual is willing to trade $x$ for $y$ while remaining equally well off.
To trade $x$ for $y$ here means to give up some $\Delta x$ to receive $\Delta y$ per unit of $\Delta x$. Letting $\Delta x\rightarrow 0$ the rate is $-\frac{dy}{dx}=MRS_{xy}$.
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There is most likely an assumption in the background that utility is increasing in the amount of flour, independently of its packaging. Then you are willing to exchange two 1kg-bags of flour for one 2kg-bag of flour. Thus the MRS is -2 (or -0.5, depending on the direction of exchange).
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The joke is conflating the value of the item you get and the value of the option to determine which item you get.
Suppose I value the Snickers at $\\\$.4$ and the M&Ms at $\\\$.75$.
If I am offered a Snickers for free my economic profit is $\\\$.4$. If I could get the additional option to choose between the Snickers and a bag of M&Ms, rather than ...
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First of all its all just joke so you should not read too much into it. Most jokes are based on some false/overly simplified premise.
You are right:
There are two problematic claims here:
Being offered a choice between two identical packages of M&Ms is equivalent to being offered nothing.
This is erroneous argument if for no other reason than that in ...
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