logging in or signing up Indifference curve analysis harshitsinha Download Post to : URL : Related Presentations : Share Add to Flag Embed Email Send to Blogs and Networks Add to Channel Uploaded from authorPOINT lite Insert YouTube videos in PowerPont slides with aS Desktop Copy embed code: Embed: Flash iPad Copy Does not support media & animations WordPress Embed Customize Embed URL: Copy Thumbnail: Copy The presentation is successfully added In Your Favorites. Views: 375 Category: Entertainment License: All Rights Reserved Like it (0) Dislike it (0) Added: September 13, 2011 This Presentation is Public Favorites: 1 Presentation Description No description available. Comments Posting comment... Premium member Presentation Transcript Indifference Curve Analysis: Indifference Curve Analysis Chapter 8 AppendixSophie’s Choice: Sophie’s Choice Sophie eats chocolate bars and drinks soda. She wants to maximize her utility given a budget constraint.Graphing the Budget Constraint: Graphing the Budget Constraint Chocolate bars cost $1 and sodas cost 50 cents each. Sophie has $10 to spend. She can buy 10 chocolate bars or 20 sodas or some combination of each.Graphing the Budget Constraint: Graphing the Budget ConstraintGraphing the Budget Constraint: Graphing the Budget Constraint The slope of the budget constraint is the ratio of the prices of the two goods. The slope changes when the prices change.Graphing the Indifference Curve: Graphing the Indifference Curve Indifference curve – a curve that shows combinations of goods among which an individual is indifferent. The slope of the indifference curve is the ratio of marginal utilities of the two goods.Graphing the Indifference Curve: Graphing the Indifference Curve The absolute value of the slope of an indifference curve is called the marginal rate of substitution.Graphing the Indifference Curve: Graphing the Indifference Curve Marginal rate of substitution – the rate at which one good must be added when the other is taken away in order to keep the individual indifferent between the two combinations.Graphing the Indifference Curve: Graphing the Indifference Curve Indifference curves are downward sloping and bowed inward.Graphing the Indifference Curve: Graphing the Indifference Curve Law of diminishing marginal rate of substitution – as you get more and more of a good, if some of that good is taken away, then the marginal addition of another good you need to keep you on your indifference curve gets less and less.Graphing the Indifference Curve: Graphing the Indifference CurveA Group of Indifference Curves: A Group of Indifference Curves Sophie will have a whole group of indifference curves, each representing a different level of happiness.A Group of Indifference Curves: A Group of Indifference Curves If she prefers more to less, she is better off with the indifference curve that is farthest to the right.A Group of Indifference Curves: A Group of Indifference CurvesWhy Indifference Curves Cannot Cross: Why Indifference Curves Cannot Cross If indifference curves crossed, it would violate the “prefer-more-to-less” principle.Why Indifference Curves Cannot Cross: Why Indifference Curves Cannot CrossIndifference Curves and Budget Constraints: Indifference Curves and Budget Constraints Sophie will maximize her utility by consuming on the highest indifference curve as possible, given her budget constraint.Indifference Curves and Budget Constraints: Indifference Curves and Budget Constraints The best combination is the point where the indifference curve and the budget line are tangent.Indifference Curves and Budget Constraints: Indifference Curves and Budget Constraints The best combination is the point where the slope of the budget line equals the slope of the indifference curve.Indifference Curves and Budget Constraints: Indifference Curves and Budget ConstraintsDeriving a Demand Curve from the Indifference Curve: Deriving a Demand Curve from the Indifference Curve Demand is the quantity of a good that a person will buy at various prices.Deriving a Demand Curve from the Indifference Curve: Deriving a Demand Curve from the Indifference Curve The point of tangency of the indifference curve and the budget line gives the quantity that a person would buy at a given price.Deriving a Demand Curve from the Indifference Curve: Deriving a Demand Curve from the Indifference Curve By varying the price of one of the goods while holding the price of other constant, the points of tangency will change. This gives alternative price/quantity combinations.Deriving a Demand Curve from the Indifference Curve: Deriving a Demand Curve from the Indifference CurveIndifference Curve Analysis: Indifference Curve Analysis End of Chapter 8 Appendix You do not have the permission to view this presentation. In order to view it, please contact the author of the presentation.
Indifference curve analysis harshitsinha Download Post to : URL : Related Presentations : Share Add to Flag Embed Email Send to Blogs and Networks Add to Channel Uploaded from authorPOINT lite Insert YouTube videos in PowerPont slides with aS Desktop Copy embed code: Embed: Flash iPad Copy Does not support media & animations WordPress Embed Customize Embed URL: Copy Thumbnail: Copy The presentation is successfully added In Your Favorites. Views: 375 Category: Entertainment License: All Rights Reserved Like it (0) Dislike it (0) Added: September 13, 2011 This Presentation is Public Favorites: 1 Presentation Description No description available. Comments Posting comment... Premium member Presentation Transcript Indifference Curve Analysis: Indifference Curve Analysis Chapter 8 AppendixSophie’s Choice: Sophie’s Choice Sophie eats chocolate bars and drinks soda. She wants to maximize her utility given a budget constraint.Graphing the Budget Constraint: Graphing the Budget Constraint Chocolate bars cost $1 and sodas cost 50 cents each. Sophie has $10 to spend. She can buy 10 chocolate bars or 20 sodas or some combination of each.Graphing the Budget Constraint: Graphing the Budget ConstraintGraphing the Budget Constraint: Graphing the Budget Constraint The slope of the budget constraint is the ratio of the prices of the two goods. The slope changes when the prices change.Graphing the Indifference Curve: Graphing the Indifference Curve Indifference curve – a curve that shows combinations of goods among which an individual is indifferent. The slope of the indifference curve is the ratio of marginal utilities of the two goods.Graphing the Indifference Curve: Graphing the Indifference Curve The absolute value of the slope of an indifference curve is called the marginal rate of substitution.Graphing the Indifference Curve: Graphing the Indifference Curve Marginal rate of substitution – the rate at which one good must be added when the other is taken away in order to keep the individual indifferent between the two combinations.Graphing the Indifference Curve: Graphing the Indifference Curve Indifference curves are downward sloping and bowed inward.Graphing the Indifference Curve: Graphing the Indifference Curve Law of diminishing marginal rate of substitution – as you get more and more of a good, if some of that good is taken away, then the marginal addition of another good you need to keep you on your indifference curve gets less and less.Graphing the Indifference Curve: Graphing the Indifference CurveA Group of Indifference Curves: A Group of Indifference Curves Sophie will have a whole group of indifference curves, each representing a different level of happiness.A Group of Indifference Curves: A Group of Indifference Curves If she prefers more to less, she is better off with the indifference curve that is farthest to the right.A Group of Indifference Curves: A Group of Indifference CurvesWhy Indifference Curves Cannot Cross: Why Indifference Curves Cannot Cross If indifference curves crossed, it would violate the “prefer-more-to-less” principle.Why Indifference Curves Cannot Cross: Why Indifference Curves Cannot CrossIndifference Curves and Budget Constraints: Indifference Curves and Budget Constraints Sophie will maximize her utility by consuming on the highest indifference curve as possible, given her budget constraint.Indifference Curves and Budget Constraints: Indifference Curves and Budget Constraints The best combination is the point where the indifference curve and the budget line are tangent.Indifference Curves and Budget Constraints: Indifference Curves and Budget Constraints The best combination is the point where the slope of the budget line equals the slope of the indifference curve.Indifference Curves and Budget Constraints: Indifference Curves and Budget ConstraintsDeriving a Demand Curve from the Indifference Curve: Deriving a Demand Curve from the Indifference Curve Demand is the quantity of a good that a person will buy at various prices.Deriving a Demand Curve from the Indifference Curve: Deriving a Demand Curve from the Indifference Curve The point of tangency of the indifference curve and the budget line gives the quantity that a person would buy at a given price.Deriving a Demand Curve from the Indifference Curve: Deriving a Demand Curve from the Indifference Curve By varying the price of one of the goods while holding the price of other constant, the points of tangency will change. This gives alternative price/quantity combinations.Deriving a Demand Curve from the Indifference Curve: Deriving a Demand Curve from the Indifference CurveIndifference Curve Analysis: Indifference Curve Analysis End of Chapter 8 Appendix