1a ) what is an indifference curve? - PowerPoint PPT Presentation

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1a ) what is an indifference curve?

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1a ) what is an indifference curve?
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1a ) what is an indifference curve?

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  1. 1a) what is an indifference curve? b)What does convexity mean for an indifference curve in relation to the marginal rate of substitution? As one moves in the "northeast" direction on an indifference "map" what happens to the persons utility? 2) Every day Fred buys wax lips and candy cigarettes. He has $20 to spend and wax lips sell for $2 a pair and candy cigarettes sell for $1 per pack. Fred can calculate the utility he receives from a combination of wax lip pairs and packs of cigarettes by multiplying the 2 quantities together. Create a table with three columns. Make the first column the pairs of wax lips he can by and have values from 0 through 10 listed. Make the second column be the packs of cigarette he can buy given his $20 and given the prices of each and match up with the first column. The first two columns thus represent the budget constraint of the individual. The third column should be the utility of each bundle. List those values. Do some bundles in the table give the same utility and thus leave the individual indifferent? If so, list the groups of bundles that leave Fred indifferent. Which bundle maximizes the utility for Fred?