EconomicsPresentation 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 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
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
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
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)
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
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
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
Indifference Curve for Two BADs
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!
The IC Map of Bobby and Tinom’s photo. Tinom’s photo Preference direction U3>U2>U1 U3 U2 U1 Bobby’s photo 0
THANK YOU That’s the end of our presentation
Done by • Phoebe Lee • Sheila Lee • Karen Tang • Alice Wong • Abbie Yip