Ch 6微观经济学.pptVIP

Indifference curves and utility maximization Marginal rate of substitution MRS Willingness to trade Slope of indifference curve Law of diminishing MRS Diminishing slope of I curve * Indifference curves and utility maximization Indifference map Graphical representation of consumer’s tastes Each I: different utility levels The further indifference curve from origin The higher the utility More of both goods * Exhibit 10 An indifference map * I1 5 10 Video rentals per week 5 10 Pizzas per week 0 I2 I3 I4 Indifference curves I1 through I4 are examples from a consumer’s particular indifference map. Indifference curves farther from origin depict higher levels of utility. A line intersects each higher indifference curve, reflecting more of both goods. Exhibit 11 Indifference curves do not intersect * Video rentals per week Pizzas per week 0 I’ I i k j If indifference curves crossed (i) every point on I and every point on I’ would have to reflect the same level of utility as i. k: more pizzas and videos than j; higher utility than j Indifference curves cannot intersect Indifference curves and utility maximization The budget line Combinations of goods Able to buy Consumption possibilities frontier Slope of budget line: * Exhibit 12 A budget line * 5 10 Video rentals per week 5 10 Pizzas per week 0 Slope = -pp / pv = -$8/$4 = -2 Budget line: all combinations of pizza and videos that can be purchased at fixed prices with a given income. Slope = -2: the price of 1 pizza is 2 videos. Indifference curves and utility maximization Consumer equilibrium at the tangency Maximize utility Indifference curve tangent to budget line * Exhibit 13 Utility maximization * I1 I2 I3 e 5 10 Video rentals per week 4 5 10 Pizzas per week 0 3 A consumer’s utility is maximized at point e, where indifference curve I2 is tangent to the budget line. Indifference curves and utility maximization Effects of a change in price Derive the D curve Income effect Substitution effect * D Exhibit 14 Effect