Indifference curve budget line

It is an abstract i.

Indifference curve budget line

P S After canceling, Equation 7. It is easy to go awry on the issue of the slope of the budget line: It is the negative of the price of the good on the horizontal axis divided by the price of the good on the vertical axis.

But does not slope equal the change in the vertical axis divided by the change in the horizontal axis?

The answer, of course, is that the definition of slope has not changed. Notice that Equation 7. We then manipulated Equation 7.

Price is not the variable that is shown on the two axes. The axes show the quantities of the two goods. Indifference Curves Suppose Ms.

Indifference curve budget line

Bain spends 2 days skiing and 3 days horseback riding per semester. She will derive some level of total utility from that combination of the two activities.

There are other combinations of the two activities that would yield the same level of total utility. Combinations of two goods that yield equal levels of utility are shown on an indifference curve Graph that shows combinations of two goods that yield equal levels of utility.

Limiting the situation to two goods allows us to show the problem graphically. By stating the problem of utility maximization with equations, we could extend the analysis to any number of goods and services.

Because all points along an indifference curve generate the same level of utility, economists say that a consumer is indifferent between them.

Indifference curve budget line

Point X marks Ms. The indifference curve shows that she could obtain the same level of utility by moving to point W, skiing for 7 days and going horseback riding for 1 day.

She could also get the same level of utility at point Y, skiing just 1 day and spending 5 days horseback riding. Bain is indifferent among combinations W, X, and Y.

We assume that the two goods are divisible, so she is indifferent between any two points along an indifference curve. Janet Bain is thus indifferent to which point on the curve she selects.

Any point below and to the left of the indifference curve would produce a lower level of utility; any point above and to the right of the indifference curve would produce a higher level of utility.

Now look at point T in Figure 7.

Indifference curve map

It has the same amount of skiing as point X, but fewer days are spent horseback riding. Bain would thus prefer point X to point T.If consumer income increases then the consumer will be able to purchase higher combinations of goods.

Hence an increase in consumer income will result in a shift in the budget line. Jan 17,  · Using indifference curves to think about the point on the budget line that maximizes total utility Watch the next lesson: Application of Indifference Curve Analysis: We now describe in brief as to how indifference curves and budget lines can be used to analysis the effects on consumption due to (a) changes in the income of a consumer (b) changes in the price of a commodity.

(1) . There could be another indifference curve that looks like that. There could be another indifferent curve that looks like that. All that says is that we are indifferent between any points on this curve. And so there is an indifference curve that touches exactly this budget line, or exactly touches the line at one point.

Oxymoron Pronunciation: ahk-si-mo-ron Meaning: A figure of speech in which opposite or contradictory words-ostensibly semantic opposites-are combined to create a rhetorical effect by paradoxical means, e.g. "a long brief" or "hot ice". Combining Janet Bain’s budget line and indifference curves from Figure "The Budget Line" and Figure "Indifference Curves", we find a point that (1) satisfies the budget constraint and (2) is on the highest indifference curve possible.

That occurs for Ms.

Bain at point X.

Microeconomics/Indifference Curves and Budget Lines - Wikiversity