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Indifference map & budget line
Y Yi r Infeasible region s I5 t Y1 I4 I3 u Animate A) B line and Indifference Map, I2 v I1 feasible region Y O X1 Xi Optimal point : Where the budget line is tangent to the highest indifference curve.
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Introductory Economic Lecture 5
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Introductory Economic Lecture 12
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Limitations of Indifference analysis
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If the budget line is tangential to the indifference curve both will have the same slope
Slope of the budget line = Px Py MUx Slope of the indifference curve = MRS = MUy Must animate 1) slope of BL/////////////////////2) slope of IC must wait at MRS ( must animate ) /////////3)Therefore……………….///////////////4) LAST i.e. Therefore the optimal consumption point : Px MUx = Py MUy MUx MUy i.e. = Px Py
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MINIMIZATION OF COST AT A CERTAIN LEVEL
OF UTILITY Y r I B1 B2 B3 B4 B5 X O
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The effect on optimal consumption of a change in real income
Y Income consumption curve u t A) Animate grey line (thick one) and income consumption curve. s I4 r I3 I2 I1 B1 B2 B3 B4 X O
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I3 I2 I1 O Qcd1 Qcd2 Qcd3 Y1 O Qcd1 Qcd2 Qcd3 Bread
Income consumption curve c Qb3 b Qb2 a I3 Qb1 I2 I1 B1 B2 B3 O Qcd1 Qcd2 Qcd3 CDs Income Animate lower graph Engel curve Y3 c Y2 b Y1 a O Qcd1 Qcd2 Qcd3 CDs
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I3` I2` I1` Qcd3 Qcd2 Qcd1 O Q3` Q2` Q1` Y1 O Q3` Q2` Q1` CDs
B3 c` B2 I3` Qcd2 b` I2` B1 Qcd1 a` I1` O Margarine Q3` Q2` Q1` Income Animate lower figure c` Y3 b` Y2 Y1 a` Demand Curve O Q3` Q2` Q1` Margarine
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The effect on optimal consumption of a change in price of one good
Y a 30 20 Price consumption curve k j I2 ANIMATE\\\\\\\\1) Only B1 2)I1 and I2 and J\\\\\\\\\\\\\\\\\\\\\\\\\\\ 3) B2 a and k\\\\\\\\\\\\\\\4) Price consumption curve +grey line 10 I1 B1 B2 X O 30 10 15 20
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Derivation of demand curve for good X
Px j Rs 20 k Rs 10 X O 15 30
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Price effect for normal good
Y g h f I2 2)Animate dotted red line point g and B1a//////////////////////////////////3)substitution effect +income effect I1 B2 B1a B1 X O Substitution effect Income effect
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Price effect for inferior good
Y g f h I2 Animate lower arrows I.E and S.E I1 B2 B1a B1 X O Substitution effect Income effect
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Price effect for giffen good
Y g f I1 Animate lower 2 arrows S.E and I.E h I2 B2 B1a B1 X O Substitution effect Income effect
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An individual consumer’s demand for dishwasher
P Do not convert into flash P1 D O Q 1 2
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