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Indifference map & budget line. Y. Y i. r. Infeasible region. s. I 5. t. Y 1. I 4. I 3. u. I 2. v. I 1. feasible region. Y. O. X i. X 1. Optimal point : Where the budget line is tangent to the highest indifference curve.

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  1. Indifference map & budget line Y Yi r Infeasible region s I5 t Y1 I4 I3 u I2 v I1 feasible region Y O Xi X1 Optimal point : Where the budget line is tangent to the highest indifference curve.

  2. If the budget line is tangential to the indifference curve both will have the same slope Slope of the budget line = Px Py MUx Slope of the indifference curve = MRS = MUy Therefore the optimal consumption point : MUx Px = Py MUy MUx MUy i.e. = Px Py

  3. Y MINIMIZATION OF COST GIVEN A CERTAIN LEVEL OF UTILITY r I B1 B2 B3 B4 B5 X O

  4. The effect on optimal consumption of a change in real income Y Income consumption curve u t s I4 r I3 I2 I1 B1 B2 B3 B4 X O

  5. Bread Income consumption curve c Qb3 b Qb2 I3 a Qb1 I2 I1 B2 B1 B3 O Qcd1 Qcd2 Qcd3 CDs Income Engel curve Y3 c b Y2 a Y1 O Qcd1 Qcd2 Qcd3 CDs

  6. CDs Qcd3 B3 c` B2 I3` Qcd2 b` I2` B1 Qcd1 a` I1` O Margarine Q3` Q2` Q1` Income c` Y3 b` Y2 a` Y1 Demand Curve O Q3` Q2` Q1` Margarine

  7. The effect on optimal consumption of a change in price of one good Y a 30 20 Price consumption curve k j I2 10 I1 B1 B2 X O 30 10 20 15

  8. Derivation of demand curve for good X Px j Rs 20 k Rs 10 X O 15 30

  9. Price effect for normal good Y g h f I2 I1 B1 B2 B1a X O Substitution effect Income effect

  10. Price effect for inferior good Y g f h I2 I1 B1 B2 B1a X O Substitution effect Income effect

  11. Price effect for giffen good Y g f I1 h I2 B1 B2 B1a X O Substitution effect Income effect

  12. An individual consumer’s demand for dishwasher P Do not convert into flash P1 D O Q 1 2

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