Microeconomics

Consumer’s Equilibrium with Indifference Curve Approach

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Introduction A consumer attains his/her equilibrium when he/she maximizes his/her total utility, given his/her income and the prices of the two commodities. We combine the indifference curves and the budget line on the same diagram to illustrate the consumer’s equilibrium graphically. The indifference curve in the utility analysis assumes that the consumer tries to maximize […]

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The Consumption Decision

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Learning Objective To explain the technique and solution of the consumption decision problem Once the consumer identifies his or her preference concerning several consumption bundles represented by the indifference map and which bundles can or cannot be afforded represented by the budget line, the decision problem is now related to the consumption decision. The straightforward

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Cardinal Utility Versus Ordinal Utility

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Learning Objective To explain the similarities and differences between cardinal and ordinal utility analysis (cardinal utility versus ordinal utility)   Ordinal utility analysis is considered the improved form of cardinal utility analysis and is also considered a superior method to study consumer’s behavior. Indifference curve analysis is more objective, more scientific, and more applicable because

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Application and Uses of Indifference Curve

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Besides the analysis of consumer behavior and consumer demand, the technique of the indifference curve can be used in the analysis of several other economic phenomena and issues. Mainly the technique of indifference curves is applied in the areas like consumer’s surplus, the individual labor supply curve, numerous doctrines of welfare economics, the burden of

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Decomposition of Price Effect into Substitution and Income Effects

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Different factors directly affect the consumer’s equilibrium condition, including changes in the price of one good, the price of other goods, and money income. It means a change in the price of the goods; the price of other goods and the money income of the consumer brings a change in the consumer’s equilibrium from one

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Income Effect and Income Consumption Curve

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The income of the consumer is also one of the major factors affecting the consumer’s equilibrium or objective of utility maximization. Consumer’s purchase decision of goods and services changes with the change in his/her income size because the size of income defines the consumer’s ability to pay and purchase. Here we will explain the meaning

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Price Effect and Price Consumption Curve

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Consumer’s equilibrium is derived under ordinal utility analysis with the assumption of constant money income and prices of the goods. But in reality, consumer preference, money income, and prices are important factors affecting consumers’ objective of utility optimization. A consumer’s preference for goods and services directly changes with the change in income of the consumer

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