By Group 3

.ƒ ƒ ƒ Consumers have a choice of what goods/bundle to consume Scarcity results in Consumer Choice becoming an economic problem. Consumer choice entails :  The economically feasible set (budget constraint)  Preferences (indifference curves)  Choice : Choose the bundle in the feasible set which yields the highest utility.

this is known as the indifference curve.ƒ ƒ A tool to analyze Consumer preferences If a consumer equally prefers two product bundles. The consumer will get the same level of satisfaction (utility) from either bundles. Graphically speaking. . then the consumer is indifferent between the two bundles.

Good X Good Y .

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Willingness of the consumer to exchange one good for another .ƒ ƒ MRS is defined as the absolute value of the slope of the indifference curve at that point.

Good X Good X Good Y Good Y .

ƒ ƒ ƒ Higher indifference curves are preferred to lower ones. Indifference curves are downward sloping. . Indifference curves do not cross.

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. Indifference curves are bowed inward. Indifference curves are downward sloping. Indifference curves do not cross.ƒ ƒ ƒ ƒ Higher indifference curves are preferred to lower ones.

Types Of Indifference curves .

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Good X Good Y .

Affect of Changing Income on Consumer choices .

Good X X Y Good Y .

X X X Y Y Y .

ƒ ƒ ƒ ƒ To determine Consumer Preferences To determine the demand To know the Competitiveness of the product The Income fluctuations influencing consumer demand .

ƒ Indifference curves allow us to consider the behavior of consumers when they are faced with combinations and bundles of more than one commodity. ƒ . Indifference curve analysis avoids the need to measure utility in absolute terms and requires only that consumer be able to state his rank order of preferences for goods.

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