Spotlight on the theory Indifference Curve Analysis The aim of indifference curve analysis is to analyse how a rational consumer chooses between two goods. In other words‚ how the change in the wage rate will affect the choice between leisure time and work time. Indifference analysis combines two concepts; indifference curves and budget lines (constraints) The indifference curve An indifference curve is a line that shows all the possible combinations of two goods between which a person is
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desirable goods‚ a consumer will definitely know which is preferred‚ or will definitely know that s/he would be equally happy with either‚ nor does it imply that the consumer finds both baskets undesirable. Rather‚ indifference implies that both baskets are equally desirable. This state of indifference plays a crucial role in the model of consumer choice. 2. Axiom of Non-Satiation Given two market baskets‚ A and B‚ the consumer will always prefer the basket that has more of at least one item and no
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1. When a good or service satisfies wants‚ we say that it provides: A. utility maximization. B. opportunity cost. C. revenue potential. D. utility. 2. Refer to the above data. The value for Y is: A. 25. B. 30. C. 40. D. 45. 3. Refer to the above data. The value for X is: A. 15. B. 5. C. 55. D. 10. 4. Refer to the above data. The value for W is: A. 15. B. 20. C. 25. D. 30. 5. Refer to the above data. The value for Z is: A. -5. B. +5. C. -10. D. zero. 6. A product
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Following: 1. Indifference Curve - An indifference curve is a graph showing combination of two goods that give the consumer equal satisfaction and utility. Definition: An indifference curve is a graph showing combination of two goods that give the consumer equal satisfaction and utility. Each point on an indifference curve indicates that a consumer is indifferent between the two and all points give him the same utility. Description: Graphically‚ the indifference curve is drawn
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the demand curve? To show what the consumer should do to maximize utility‚ a budget line must be added to the preferences shown in the indifference curves. The picture below adds one. Point a is not attainable because it lies to the right of the budget line. The consumer is indifferent between points b and d because they lie on the same indifference curve‚ but point d is cheaper than b because d lies below the budget line. The consumer wants to get on the highest indifference curve affordable
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Supplement to Unit - II BEHIND THE DEMAND CURVE: THE THEORY OF CONSUMER CHOICE Here‚ the purpose is to explain the derivation of the demand function and to provide an understanding of the consumer decision-making process. Consumer Preferences Individuals make choices based on their personal tastes and preferences. Tastes and preferences are shaped by many factors. Some of the factors are family environment‚ physical condition‚ age‚ sex‚ education‚ religion‚ and location. In the analysis that
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Bombay The long-run cost curve (LTC) is composed of a series of short-run cost curves. Assumes that the firm has only one plant‚ with the corresponding short-run cost curve given by STC1‚ Suppose the firm decides to add two more plants with associated two more short-run cost curves given by STC2 and STC3. Prof. Trupti Mishra‚ School of Management‚ IIT Bombay The long-run total cost curve (LTC) is then drawn through the minimum of the short-run cost curves‚ STC1‚STC2‚ and STC3. The
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a utility-maximizing consumer from a given budget. Given prices and income‚ you know how to graph a consumer’s budget. If you also know the consumer’s preferences‚ you can graph some of his indifference curves. The consumer will choose the “best” indifference curve that he can reach given his budget. But when you try to do this‚ you have to ask yourself‚ “How do I find the most desirable indifference curve that the consumer can reach?” The answer to this question is “look in the likely places.”
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= FC‚ where F and C are the two goods available for purchase: food and clothing. a. Graph Juan’s indifference curves for the following levels of utility: 100‚ 200‚ and 300. Juan’s indifference curves for U = 100‚ 200 and 300 are pictured as follows. The general formula for the graph of an indifference curve for a given level of utility‚ U*‚ is F=U*/C (since U* = F x C). For example‚ the indifference curve for U* = 100 is
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show that‚ if a consumer prefers more to less then his indifference curves cannot cross. 2) Suppose that current and future consumption are perfect substitutes. The indifference curves will consist of parallel lines with the negative slope m‚ where m > 0. a) How does the marginal rate of substitution between current and future consumption relate to the geometry (i.e. the slope and the intercept) of the consumer’s indifference curves? b) Given perfect substitutes‚ is more preferred to less
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