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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. Introductory Economic Lecture 5. Introductory

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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. Introductory Economic Lecture 5

  3. Introductory Economic Lecture 12

  4. Limitations of Indifference analysis

  5. Ifthe 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

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

  7. 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

  8. 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

  9. 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

  10. 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

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

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

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

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

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

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