EC260 Chapter Notes - Chapter 3: Supply And Demand, Budget Constraint, Reservation Price
Document Summary
In examining how consumers choose, we assume a consumer is rational and wishes to maximize his or her well-being; with well-being arising from the goods the individual chooses to purchase with the income he/she has available. Our second simplifying assumption is that consumers have a choice of only two goods to purchase: food and clothing. An indifference curve maps out all of the market bundles that provide the consumer with the same level of well-being (satisfaction) such that the consumer is indifferent among which of the bundles he/she chooses. As shown in the graph, the consumer is indifferent between bundles denoted by point l and point k. Characteristics of indifference curves: a consumer has many indifference curves, higher indifference curves are preferred to lower ones. I2 is preferred over i1 in the figure above; it brings a greater level of well-being for the individual. Assumes that an individual will always prefer more of a commodity to less.
