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A collection of (selected) indifference curves, illustrated graphically, is referred to as an indifference map. The slope of an indifference curve is called the MRS (marginal rate of substitution), and it indicates how much of good y must be sacrificed to keep the utility constant if good x is increased by one unit.
Whether indifference curves are primitive or derivable from utility functions; and; Whether indifference curves are convex. Assumptions are also made of a more technical nature, e.g. non-reversibility, saturation, etc. The pursuit of rigour is not always conducive to intelligibility. In this article indifference curves will be treated as primitive.
They show the extent to which the firm in question has the ability to substitute between two different inputs (x and y in the graph) at will in order to produce the same level of output (see: Graph C)). They also represent different quantity combinations of two goods which adhere to a budget constraint. Thus, they can be used as a tool to help ...
The indifference curves are straight lines (when there are two goods) or hyperplanes (when there are more goods). Each demand curve (demand as a function of price) is a step function : the consumer wants to buy zero units of a good whose utility/price ratio is below the maximum, and wants to buy as many units as possible of a good whose utility ...
A curve connecting the tangency points is called the expansion path because it shows how the input usages expand as the chosen level of output expands. In economics , an expansion path (also called a scale line [ 1 ] ) is a path connecting optimal input combinations as the scale of production expands. [ 2 ]
Shephard's lemma is a major result in microeconomics having applications in the theory of the firm and in consumer choice. [1] The lemma states that if indifference curves of the expenditure or cost function are convex, then the cost minimizing point of a given good with price is unique.
The preferences are weakly monotone but not strongly monotone: having a larger quantity of a single good does not increase utility, but having a larger quantity of all goods does. The preferences are weakly convex, but not strictly convex: a mix of two equivalent bundles may be either equivalent to or better than the original bundles.
Indifference curves C 1, C 2 and C 3 are shown. Each of the different points on a particular indifference curve shows a different combination of risk and return, which provide the same satisfaction to the investors. Each curve to the left represents higher utility or satisfaction. The goal of the investor would be to maximize their satisfaction ...