Principles of Microeconomics
Consumer Theory: - It possible to describe the choices of consumers. Consumer can refer to a family or it can refer to the government of a country, too. He can choose form only 2 products: x and y. Products refer to a singe product or service that is consumed, a group products. X could represent consumer goods and y capital goods. Consumers have limited resources. They wish to have more of y and they give up some of x and vice versa.
Y = The total budget, y, has to be spent on the 2 products. (Budget = p * q).
Px and Py = the price of the products.
qx and qy = the quantities consumed.
Budget line is Y = px qx + py qy
Utility & Indifference Curves: We assume that customers are able to choose from two alternatives that offer the same products in different quantities.
The total utility of a consumer increases as the amount of products consumed increases, every additional units consumed adds less and less to the total utility of the consumer.
If a Consumers consume 2 different products, x & y , total utility function is an increasing function of the quantity consume, qx & qy.
U = ÃÂ ( qx , qy).
Indifference Curve shows all product combinations of x & y that give the same satisfaction level to the consumer. The Collection of indifference curves is Indifference Map.
U each person have different level of satisfaction Utilities. The higher the indifference curve, the higher is the level of satisfactions of the consumer.
At point E, customer consumes more x and less y. choosing B or D makes the customer better, each time Utility raises to U2,then U3.
Point C is the best option.
Indifference Curve Expresses...