indifference curves
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he explains quite well but he is incorrect saying that the preferences can not be a straight line, in cases when goods are perfect substitutes for example blue pencils and red pencils makes no differences. Also there are other shapes like L shaped. If we want to be more critic, you can not buy fractions of cars because this variable is discrete, not continuous, in that case his example is not ok.
1 year ago 7
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You just screwed it all up. What about perfect complements or substitute. when the indifference is unconventional.
All Comments (131)
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This lesson was so awesome! Very clear. :-) Thank you!
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Paj Holden, aka the archbishop of banterbury
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@ismawan1980 dont be so pedantic.
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think u so much really help me
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Pardon me, just a humble opinion. The examples are too far fetched. "food" and "car" is very different product category, in the language of marketing. Would not it be better if we use examples such as "burger" and "coke"? People can relate much more easier with that.
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@okam101 I believe such two things don't exist in reality. Perfect substitutes mean two goods that are identical. Perfect complements mean two parts of the same good. And thus unconventional indifference curve does not exist.
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@okam101 Hi Okam, you are right. Indifference curves could be linear if perfect subsitutes are involved. For that, the marginal rate of subsitution is constant throughout. Optimal utility could be achieved by solving for corner solution.
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Thanks a lot. That really helped me but I have one question:
Why isn't the path of the way the spending changes linear? You give the example of it bending towards the "cars" and I don't get that.
MrKingJumbo 1 year ago
@MrKingJumbo thanks for getting in touch- as the consumer has more to spend (and their budget line shifts outwards) they choose to use a greater proportion of their extra income on cars. Cars mus have greater income elasticity of demand in my example...
pajholden 1 sec ago
pajholden 1 year ago