Indifference Curves, Utility Maximizing Conditions, and Demand Curves
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1. Using Indifference Curve and Budget Line analysis, graphically demonstrate the equilibrium of a consumer who is maximizing utility. Briefly explain.
2. Using Indifference Curve and Budget Line analysis, graphically demonstrate how you can derive a demand curve. Briefly explain.
Note: In the above questions, assume a bundle of two goods X and Y. Put X on the horizontal axis and Y on the vertical axis. Explain, using powerpoint to illustrate.
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Solution Summary
This solution shows the utility maximizing conditions, both graphically and algebraically. In addition, this solution also has a step by step description of how to derive Marshallian and Hicksian Demand Curves using Indifference curves. It includes a powerpoint file with diagrams and animations explaining how the diagrams are derived.
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Please see attached file for complete solution.
Some basics:
All points on a given Indifference Curve (IDC) give the consumer the same level of satisfaction.
The higher up we go an IDC map, the higher the utility.
IDCs ...
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