Analyse Indifference Curves and the effect on lower prices. (20)
Explain Utility - satisfaction from consuming good
Indifference curve- shows all combination of 2 goods which give consumer equal utilityDraw Indifference curve with examples.- explains why consumers will normally buy more and lower pricesDraw budget line ( combination of goods afordable with income (demand for good)
Explain equi-marginal principle . MUA/PA = MUB/PB (maximising consumer utility by choosing a combination of goods to maximise their Total utility)
Explain and draw the optimal choice- which is where the 2 curves meet.Show impact of lower price- draw diagram
Income and substitution effects. Normal goods, Inferior goods, Giffen goods.
Limitations:
difficulty in evalutaing utility- no monetary valuedont have to evaluate MU-purchase out of habitconsumer not always rational
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