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Economics Lecture Four (view source)
Revision as of 19:31, September 21, 2009
, 19:31, September 21, 2009→Indifference Curve: format
Was this worth it? Yes: now you have two extra potato chips that you would not have had by splitting everything equally. Chris and Stephanie are just as happy, and you can share the additional chips with Kevin.
Was this worth it? Yes: now you have two extra potato chips that you would not have had by splitting everything equally. Chris and Stephanie are just as happy, and you can share the additional chips with Kevin.
The graph below is for a typical set of three indifference curves (I<sub>1</sub>, I<sub>2</sub> and I<sub>3</sub>) for someone for two goods X and Y. Note that this graph does not compare Price and Quantity, but compares the Quantity of good X (on the x-axis) with the Quantity of good Y (on the y-axis). As one goes down a specific curve, the person is "indifferent" with giving up Quantity of good Y in exchange for more of good X. The person becomes more satisfied or happier when he shifts to an entirely new curve, as in moving from I<sub>1</sub> to I<sub>2</sub>.
The graph below is for a typical set of three indifference curves (I<sub>1</sub>, I<sub>2</sub> and I<sub>3</sub>) for someone for two goods X and Y. Note that this graph does not compare Price and Quantity, but compares the Quantity of good X (on the x-axis) with the Quantity of good Y (on the y-axis). As one goes down a specific curve, the person is "indifferent" with giving up Quantity of good Y in exchange for more of good X. The person becomes more satisfied or happier when he shifts to an entirely new curve, as in moving from I<sub>1</sub> to I<sub>2</sub>.
{{clear}}
[[File:IndifferenceCurve3.gif|500px]]
[[File:IndifferenceCurve3.gif|500px]]
{{clear}}
{{clear}}
The next graph below is for two goods X and Y that '''''are perfect substitutes for each other''''' (like our example above of a chocolate bar and a peanut butter candy bar). In the case of perfect substitutes, the person is happy to substitute one good for the other on a one-for-one basis, and hence the slope of the curves is a perfect negative one.
The next graph below is for two goods X and Y that '''''are perfect substitutes for each other''''' (like our example above of a chocolate bar and a peanut butter candy bar). In the case of perfect substitutes, the person is happy to substitute one good for the other on a one-for-one basis, and hence the slope of the curves is a perfect negative one.
{{clear}}
[[File:IndifferenceCurve1.gif|550px]]
[[File:IndifferenceCurve1.gif|550px]]
{{clear}}
==Consumer Surplus==
==Consumer Surplus==