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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.
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 ...
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.
If the axes depicting coconut collection and leisure are reversed and plotted with Crusoe's indifference map and production function, [1] figure 2 can be drawn: Figure 2: The Robinson Crusoe economy's production function and indifference curves. The production function is concave in two dimensions and quasi-convex in three dimensions. This ...
For example, every point on the indifference curve I1 (as shown in the figure above), which represents a unique combination of good X and good Y, will give the consumer the same utility. Indifference curves have a few assumptions that explain their nature. Firstly, indifference curves are typically convex to the origin of the graph.
Under the standard assumption of neoclassical economics that goods and services are continuously divisible, the marginal rates of substitution will be the same regardless of the direction of exchange, and will correspond to the slope of an indifference curve (more precisely, to the slope multiplied by −1) passing through the consumption bundle in question, at that point: mathematically, it ...
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 ...
The consumer will maximise their utility at the kink point in the highest indifference curve that intersects the budget line where x = y. [3] This is intuition, as the consumer is rational there is no point the consumer consuming more of one good and not the other good as their utility is taken at the minimum of the two ( they have no gain in ...