8. An Example of Indifference Curve Analysis

[gueyenono]

Thank you so much. I want to ask something about this video. At 6:02 you check whether Shanna's new budget constraint line is still tangent to her indifference curve and you realize that it's not since the price ratio (Px/Py) is 1/7 and the MRS is 1/2. As a way to explain further you say: "She willingly would trade 1/2 of a packet.... 1/7 is a steal". I was thinking that she would REALLY love to trade 1/7 of a packet of push on nails (which is less that 1/2) for a whole bottle of lotion.

[gueyenono]

@gueyenono I made the mistake of exchanging push on nails for bottle of lotion in the question by the question is still valid.

[mardec14]

Epic face 5:00

[juan56i]

So could Shanna acquire any bundle on the indifference curve? Given that there is a point on it which is on the budget constraint, and Shanna is indifferent between all the bundles on the indifference curve, could she not just go for any? Or is every other point unaffordable?

[mcjl1511]

Life saver, my prof is not great, your videos are a huge help and Ill be tuning in to many more!

[TheSundas123]

Very nice work.. cleared some things for me. Though i still don't know how to see if utility is being maximized when prices of two goods and number of units of each goods being bought are known... greetings from Pakistan.

[TheSundas123]

please do help

[mguknow]

I have a sorry ass Professor who tested me on the following problem and didn't cover it in class and is not in the book used for the class HELP!!

Paul derives utility only from CDs and DVDs. His utility function is U= C * D ( C * D is square root). Sketch Paul's indifference curves for U=5, U=10. HOW DA HELL DO I DO THAT? 

[Agemrepus]

Still watching your videos. You rock!

[Tehui1974]

I'm still struggling...

[c6h36]

Hi I just wanna say brilliant video, keep up the good work. And also i wanted to know exactly how you got the optimal bundle of 9 and 3 and can you show the working out. Very much appreciated.

[intromediateecon]

@c6h36 To *exactly* work out the optimal bundle, you need a utility function. Then, follow the process I outline in Lecture 9A. The way I do it, it requires some simple calculus (derivatives) but basically you need to solve these two equations:

slopes equal: MRS = Px/Py (calculus is used for finding MRS)

budget constraint: Px*X+Py*Y = I

[sexy2lvrn]

very helpful for my reading in my micro econo class thanx!!!

[ghostwritero]

alright, first of all, WELL DONE!

I've got a question...

in your case it is possible that shanna choses an other indifferece curve because the new budget constraint isnt tangential to the first indifferece curve .. but what if : both budget constrains would be tangential to the first indifference curve .. is that possible ... ?? if yes .. shanna would choose the same bundle, am I right ????

[tony91782]

We typically think that the slope of an indifference curve changes smoothly as we move along the indifference curve. In that case, only one budget line can be tangent to an indifference curve at a particular point..

But, if the slope of the IC changed sharply (as it would at a kink), then it would be possible for two BCs to be "tangent" there, and you would be right.

[ghostwritero]

thanks for your answer tony ... !

for example: perfect complements?

[tony91782]

Correct. Indifference curves for perfect complements preferences have a kink like the one I mentioned. Good example.

[uklizanon]

If Shanna bought 5 Tanning Lotion and 5 nail packs (pre new prices). Would this still be "revealed preference" and therefore the indifference curve is always drawn on revealed preference?

[intromediateecon]

Yes. That's the idea.

Just so long as Shanna exhausts all of her income, we assume that the bundle she chooses is the utility maximizing bundle. In this way, Shanna reveals where the indifference curve/budget constraint tangency is.