BSEN 401 Lecture Notes - Ordinal Utility, Indifference Curve, Tangent

• School: University of Calgary
• Department: Business and Environment
• Course: BSEN 401
• Professor: William Huddleston

Document Summary

Indifference curves are dense in commodity space, i. e. , every combination of x and y is on an indifference curve. By the principles of non-satiation and transitivity, all combinations above indifference. Curves are preferred to points on the indifference curve and all combinations on. Indifference curves are preferred to combinations below the indifference curve. Since indifference curves are derived from ordinal utility, i. e. , preference ranking of combinations rather than actual measurement of levels of utility, there is no cardinal measurement (assignment of a particular number) of comparative preferences. We can say that combinations above (for example) an indifference curve are preferred to combinations on the indifference curve but we cannot measure the amount of the preference. Since we assume that consumers" attempt to maximize their preference (utility), consumer. Equilibrium implies that the consumer"s choice of the combination of x and y is optimal, i. e. , more preferable for the individual than any other choice, given the constraints.