Indifference curves are a graphical representation of how much value an individual receives from various combinations of consumption we measure value through the catch-all term “utility”, an concept for the value, well-being, satisfaction, benefit, etc that someone receives. All higher indifference curves, like uh, will be completely above the budget line and, although the choices on that indifference curve would provide higher utility, they are not affordable given the budget set. Indifference curve and budget line applications 1 suppose you spend some of your income on compact disks (cd) and the rest of your income (ig) on other goods.
Because the indifference curve ic 2 is the best possible indifference curve that the consumer can reach with the given resources (budget line) the tangency of indifference curve ic 2 and the price line represent the above statement. First of all, the budget lines and indifference curves are independent of each other the budget line depends on the budget available and the prices of the 2 products, nothing else each indifference curve shows the combinations of the 2 goods that yield the same level of satisfaction. The knowledge of the concept of budget line is essential for understanding the theory of consumer’s equilibrium a higher indifference curve shows a higher level of satisfaction than a lower one. Combining janet bain’s budget line and indifference curves from figure 79 “the budget line” and figure 711 “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.
Home » indifference curve analysis of consumer's equilibrium » price line or budget line : price line or budget line: definition and explanation: the understanding of the concept of budget line is essential for knowing the theory of consumer’s equilibrium consumer's equilibrium through indifference curves. Budget line should be tangent to the indifference curve at the point of equilibrium, slope of the budget line = slope of the indifference curve indifference curve should be convex to the point of origin. Essentially, indifference curves exist in economics to determine the best choice of goods or services for a consumer given that particular consumer's income and investment capital, wherein the optimal point on an indifference curve is where it correlates with the consumer's budget restraints. Budget constraints give a straight line on the indifference map showing all the possible distributions between the two goods the point of maximum utility is then the point at which an indifference curve is tangent to the budget line (illustrated.
And so there is an indifference curve that touches exactly this budget line, or exactly touches the line at one point and so i might have an indifference curve that looks like this let me do this in a vibrant color, in magenta. 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 indifferent. Initially, the consumer is in equilibrium at point r where the budget line pq is tangent to the curve i 1 with the fall in the price of x, he moves to point t on the budget line p q 1 at the higher indifference curve i 1 his movement from r to t or from в to e on the horizontal axis is the price effect.
Explain utility maximization using the concepts of indifference curves and budget lines 2 explain the notion of the marginal rate of substitution and how it relates to the budget line as we have already seen, a consumer’s choices are limited by the budget available. Indifference curve analysis suggests that the rational consumer has many such points of indifference, depending on the budget available to them, and on other significant factors which affect the consumer’s preferences between two goods. The budget line is tangent to indifference curve ic 2 at point ‘e’ this is the point of consumer equilibrium, where the consumer purchases om quantity of commodity ‘x’ and on quantity of commodity ‘y.
Indifference curve definition: the indifference curve shows the different combinations of two goods that give equal satisfaction and utility to the consumers in other words, the indifference curve is the graphical representation of different combinations of goods (generally two), for which the consumers are indifferent, in terms of the overall satisfaction and the utility. The budget line is tangent to an indifference curve equilibrium point for an indifference curve marginal utility product a/ price product a = marginal utility product b/ price product b.
Chapter 3 consumer preferences and choice in this chapter, the budget line 35 consumer’s choice list of examples 3–1 does money buy happiness (indifference curves) and the constraints that the consumer faces (the budget line) the “at the frontier ” section pre. An indifference curve depicts a line representing all the combinations of two goods that consumers place equal value that is to say, they would be indifferent to either good the consumer has no preference for either combination of goods on the same line. Draw an indifference curve associated with this bundle, and explain how its slope at the equilibrium point relates to the slope of the budget line c consider the bundle 2 movies and 8 sodas.