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The fundamental assertion is that there is a maximum amount that "a consumer will give up, of one commodity, to get one unit of another good, in that amount which will leave the consumer indifferent between the new and old situations" [9] The negative slope of the indifference curves represents the willingness of the consumer to make a trade off.
The blue curves in the diagram represent indifference curves for Octavio, and are shown as convex from his viewpoint (i.e. seen from the bottom left). The orange curves apply to Abby, and are convex as seen from the top right.
The indifference curves are L-shaped and their corners are determined by the weights. E.g., for the function min ( x 1 / 2 , x 2 / 3 ) {\displaystyle \min(x_{1}/2,x_{2}/3)} , the corners of the indifferent curves are at ( 2 t , 3 t ) {\displaystyle (2t,3t)} where t ∈ [ 0 , ∞ ) {\displaystyle t\in [0,\infty )} .
An example indifference curve is shown below: Each indifference curve is a set of points, each representing a combination of quantities of two goods or services, all of which combinations the consumer is equally satisfied with. The further a curve is from the origin, the greater is the level of utility.
Under the standard assumption of neoclassical economics that goods and services are continuously divisible, the marginal rates of substitution will be the same regardless of the direction of exchange, and will correspond to the slope of an indifference curve (more precisely, to the slope multiplied by −1) passing through the consumption bundle in question, at that point: mathematically, it ...
This ensures that the slopes of the indifference curves and the production set are the same. As a result, Crusoe ends up consuming at the same point he would have if he made all the above decisions together. In other words, using the market system has the same outcome as choosing the individual utility maximisation and cost minimisation plans. [1]
Price-consumption curves are used to connect concepts of utility, indifference curves, and budget lines to supply-demand models. [1] At each price there is a single corresponding quantity of either good. Due to this, by modeling the good with the changing price as any particular good and the good with the unchanging price as all other goods ...
In other words: a preference relation is quasilinear if there is one commodity, called the numeraire, which shifts the indifference curves outward as consumption of it increases, without changing their slope. In the two dimensional case, the indifference curves are parallel. This is useful because it allows the entire utility function to be ...