Indifference Curve Analysis: An Alternative Approach to Understanding Consumer Choice
- Explain utility maximization using the concepts of indifference curves and budget lines.
- Explain the notion of the marginal rate of substitution and how it relates to the utility-maximizing solution.
- Derive a demand curve from an indifference map.
Economists typically use a different set of tools than those presented in the chapter up to this point to analyze consumer choices. While somewhat more complex, the tools presented in this section give us a powerful framework for assessing consumer choices.
We will begin our analysis with an algebraic and graphical presentation of the budget constraint. We will then examine a new concept that allows us to draw a map of a consumer's preferences. Then we can draw some conclusions about the choices a utility-maximizing consumer could be expected to make.
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