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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 Preview

    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 ...

    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.