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Unformatted text preview: 02/25/2008 Class Notes (cover part of Chapter 8 in the textbook) Class Outline • Preference and Indifference Curves • Predicting Consumer Behavior Preference and Indifference Curves Peter consumes Beers and Donuts. We can ask Peter to rank all the possible bundles of beers and donuts into three groups: preferred, indifferent and not preferred. He will do so according to his preferences. Suppose he tells us that he is just happy to consume 2 donuts and 6 beers as to consume 6 donuts and 1.5 beers. And he also tell us that all the combinations of beers and donuts on the curve I in the graph below provide the same total utility as A and B. Graphically : 1 I represent one of Peter’s indifference curves. Def. Indifference Curve An indifference curve is a curve that shows combinations of goods among which a consumer is indifferent. • All the combinations of donuts and beers above I are preferred to those on the indifference curve • All the combinations of donuts and beers below I are not preferred to those on the indifference curve • I is only one of a whole family of such curve: I 6 1.5 A B q D q B 2 6 2 ⇒...
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This note was uploaded on 04/29/2008 for the course ECON 251 taught by Professor Blanchard during the Spring '08 term at Purdue.
- Spring '08