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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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