Indifference Curve Examples

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Consumer theory uses indifference curves and budget constraints to generate consumer demand curves. For a single consumer, this is a relatively simple process. First, let one good be an example market e. g. , carrots, and let the other be a composite of all other goods. Budget constraints give a straight line on the indifference map showing all the possible distributions between the two goods; the point of maximum utility is then the point at which an indifference curve is tangent to the budget line (illustrated). This follows from common sense: if the market values a good more than the household, the household will sell it; if the market values a good less than the household, the household will buy it. The process then continues until the market's and household's marginal rates of substitution are equal. Now, if the price of carrots were to change, and the price of all other goods were to remain constant, the gradient of the budget line would also change, leading to a different point of tangency and a different quantity demanded. These price / quantity combinations can then be used to deduce a full demand curve. A line connecting all points of tangency between the indifference curve and the budget constraint is called the expansion path.

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Photogallery Indifference Curve Examples:


Indifference Curve Examples


Indifference Curve Examples


Indifference Curve Examples


Indifference Curve Examples


Indifference Curve Examples


Indifference Curve Examples


Indifference Curve Examples


Indifference Curve Examples


Indifference Curve Examples


Indifference Curve Examples


Indifference Curve Examples


Indifference Curve Examples


Indifference Curve Examples


Indifference Curve Examples


Indifference Curve Examples


Indifference Curve Examples


Indifference Curve Examples


Indifference Curve Examples


Indifference Curve Examples