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Economics Presentation

Economics Presentation. Indifference Curve. Definition of Indifference Curve. It is a curve on which all the points show different combinations of Good X and Good Y that provide the SAME UTILITY. What is Indifference Curve???. l. A. 12. 5 Y are being sacrificed. B. l. 7.

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Economics Presentation

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  1. EconomicsPresentation Indifference Curve

  2. Definition of Indifference Curve It is a curve on which all the points show different combinations of Good X and Good Y that provide the SAME UTILITY.

  3. What is Indifference Curve??? l A 12 5 Y are being sacrificed B l 7 Quantity of Nicholas’s Photo 4 Y are being sacrificed C l D 3 1 Y is being sacrificed IC l 2 0 1 2 3 4 Quantity of Alex’s Photo

  4. Slope of IC= Δin Y Δin X Where Δ in X=1 MRSxy (Marginal Rate of Substitution of x for y) Q of Alex’s photo (X) h Slope of IC i When Q of Alex’s photo (X) h No of Nicholas’s photo (Y) willingly sacrificed to exchange for 1 Alex’s photo will be i l A Ato D 12 Slope of Indifference Curve B l 7 Quantity of Nicholas’s Photo C l D 3 IC l 2 0 1 2 3 4 Quantity of Alex’s Photo

  5. According to the postulate of Diminishing Marginal Rate of Substitution (DMRS) IC is convex to origin. l A 12 Quantity of Nicholas’s Photo B l 7 C l D 3 l IC 2 0 1 2 3 4 Quantity of Alex’s Photo

  6. It is the amount of Y sacrificed to exchange for 1 more unit of X KEEPING UTILITY CONSTANT Definition of MRSxy(Marginal Rate of Substitution of X and Y)

  7. If MRSxy h when Qx h, Slope of IC hwhen Qx h l Marginal Rate of Substitution of X for Y MRSxy Good Y 12 l 11 l 9 l IC is concave to origin 6 △Y △X MRSxy= l 0 1 2 3 4 Good X

  8. If MRSxy is constant, l MRSxy Marginal Rate of Substitution of X for Y Eason’s song 12 △Eason’s song(Y) △Jay’s song(X) 9 l =constant l 6 IC is downward sloping straight line l 3 Eason and Jay’s songs are perfect substitute l 0 1 2 3 4 Jay’s songs

  9. In the inner IC, A is equally preferred as B and C (A=B=C) As they lie on the same IC which provides same utility Indifference Map • The outer one provides a higher utility • ∴points on the outer IC is preferred to those on the inner IC • In the outer IC, D is equally preferred as E and F (D=E=F) As they lie on the same IC which provides same utility • We can label the IC with a number • The inner one is labeled with a smaller number(eg.9) The outer one is labeled with a greater number(eg.18) We use arrows to show preference direction D l E l l A F l B U=18 l C l U=9

  10. Indifference Curve for Two BADs

  11. Bad is something in which none is preferred to any. IC of two bads Bad Bad If a girl dislikes Bobby Yip (八兩金) and Tinom Cheung (張如城), she may think that their photos are BAD!

  12. The IC Map of Bobby and Tinom’s photo. Tinom’s photo Preference direction U3>U2>U1 U3 U2 U1 Bobby’s photo 0

  13. THANK YOU That’s the end of our presentation

  14. Done by • Phoebe Lee • Sheila Lee • Karen Tang • Alice Wong • Abbie Yip

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