market baskets (bundles) - group of goods 

• how/why consumers decide how much of each good to buy
• assumptions about preferences - consumers often behave erratically, but assumptions must be made for models
  • completeness - all goods are ranked (either above/below, or tied for a rank)
  • transitivity - if A preferred to B and B preferred to C, then A preferred to C
  • more > less - consumers always want more for less

indifference curve - all combinations of market baskets providing same satisfaction 

• matches up market baskets where there’s more of 1 good and less of another from the preferred basket
• market baskets above/right of curve is preferred to any basket on curve
• must slope downward (or else violates assumption that more > less)

• consumer is indifferent between baskets A, B, or C, since they lie on the same indifference curve
• A, B, C preferred to basket E, not as preferred as basket D
• baskets on an indifference curve have more of 1 good but less of another when compared to other baskets on the curve

• indifference map - describes preference for all combinations
  • set of indifference curves, can’t intersect
• marginal rate of substitution - max amount of 1 good that consumer is willing to give up for 1 extra unit of another good
  • calculated w/ respect to vertical axis
  • convex indifference curves >> decreasing marginal rate of substitution

• perfect substitute >> linear line graph >> constant marginal rate of substitution
• if 1 good is the same as another, it doesn't matter how many of each you have
• only the total number matters
• U = A + B

• perfect complement >> need both to gain satisfaction >> right angle graph
• ex. buying left/right shoes
• it doesn't matter how many right shoes you have if you don't have a left shoe to match
• consumer indifferent between a basket containing 1 right and 1 left shoe and another basket containing 1 right and 15 left shoes
• U = min(A,B)

utility function - assigns numerical values to market baskets