Question

Please answer both questions and please DO NOT FORGET to show with Two dimensional model

d) What are indifference curves ? Develop and demonstrate via a two dimensional model.

e) Given indifference curves, how is a decision made as to choices ? Demonstrate.

Thank you!

Answer 1

hot of Preferences 16 y Ic. INDiffERENCE Acc to to this approach vility is measurable father it can only be be compared and for posted Consumer can give his scale The concept based on cardinal willity is he Curves Culves : gula in all the combination af Huse goods that give some level of satisfaction, ie all the points lying on same Batisfaction same levele Batisfaction (Downwand Storting Yo Conuoc to the origin curve) Lavie of 96. heepreesent same level 1 cef A Y Ya Xo XI Xa

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Date 41 Page Class Smart ARSyx कन Ay B पा Set Of Valtions Ic's Indifference Map IT So Dash showing diff levels of ପ yo X ха X Satisfaction ondo h Ila IG IC comme. (ع) Danmading we will have Desportes an apneance Curve features Ichallacteusties ac is down wall sloping ( bloc to be at the Same level of of satisfaction if we on the Consumption of one to to the consumption of other Commodity) Dith Crud Conuer to the Broz salgin to be on Margual rate of substitution) of dig

b part

Budget dine e Law cef within all the combinations of mon goods that can be Purchased same level of inone ical all the Combinations lying an an same same price lind Orepliesen't same level of lacome, Satisfaction may or may not be same Z5 Ho G. !- पाल (Reis Rei It (Re osa الأمر ما Ros V Combination by A Bay lo $ B ya os 2:1 21 2:1 3 4 2009 C 2 Ч 5 2:1 2:1 f a

Date Page units caffe ClassSmart that can be can be purchased enting income is spen f Buy L stope 7 so can be Max units of that purchased if entire income is spent can X.

neither Csomssalen. Equilibrium It lol lafens to the situation where Conllinen wants to ↑ Consumption nor to the Constumption is he is getting max. Satisfaction. conditions in line should be tangential to IC. At the point of tangeneyn IL should be connor Balcon Paile

to the corigin Les et E3 Ic Ici Ic Eu B tonn بنا hd E * Max. Satisfaction not in Same you income fayfs, by leull of income Ch Satisfaction Fg gfy higher ici lies

So decisions made

Where indifferece curve slope is qual to buget line so as to maximize satisfaction

Also consumer will make decision at the level where he is in equilibrium

From above E3 is the highest attainable equilibrium so consumer will choose this point.