Utilityanddemand - CLASS 9-10: UTILITY AND DEMAND (II) I...

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CLASS 9-10: UTILITY AND DEMAND (II) I Consumption Possibilities The budget line describes the limits to the household’s consumption choices. Figure 8.1 shows a consumer’s budget line. 2. A household’s real income is the household’s income expressed as a quantity of goods the household can afford to buy. 3. A relative price is the price of one good divided by the price of another good. II Preferences and Indifference Curves A. Figure 8.3 illustrates a consumer’s indifference curve and indifference map, which is based on the idea that people can sort all possible combinations of goods into three groups: preferred, not preferred and indifferent. 1. An indifference curve is a line that shows those combinations of goods among which a consumer is indifferent . a) The consumer prefers points above the indifference curve to points on the indifference curve. And the consumer prefers points on the indifference curve to points below the indifference curve. b) But the consumer is indifferent among (hence its name) all the points on an indifference curve. 2. A single indifference curve is one of a family of curves that form
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This note was uploaded on 11/20/2010 for the course ECONOMICS 331 taught by Professor Mj during the Fall '10 term at University of Alberta.

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Utilityanddemand - CLASS 9-10: UTILITY AND DEMAND (II) I...

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