06A McGraw-Hill/Irwin Appendi x Consumer Behavior Copyright © 2012 by The McGraw-Hill Companies, Inc All rights reserved THE BUDGET LINE: What is Attainable The Budget Line: What is Attainable Indifference Curves: What is Preferred Equilibrium at Tangency Deriving the Demand Curve Units of Units of A Price B Price Total $1.50 $1.00 Expenditures 0 $12 12 12 12 12 12 Key Terms 12 10 Quantity of A Appendix Previous Slide Next Slide End Show 21 appendix - Copyright McGraw-Hill/Irwin, 2005 Quantity of B 10 12 THE BUDGET LINE: What is Attainable The Budget Line: What is Attainable Indifference Curves: What is Preferred Equilibrium at Tangency Deriving the Demand Curve Units of Units of A Price B Price Total $1.50 $1.00 Expenditures 0 $12 12 12 12 12 12 Key Terms 12 10 Quantity of A Appendix Previous Slide Next Slide End Show 21 appendix - Copyright McGraw-Hill/Irwin, 2005 Quantity of B 10 12 THE BUDGET LINE: What is Attainable The Budget Line: What is Attainable Indifference Curves: What is Preferred Equilibrium at Tangency Deriving the Demand Curve Units of Units of A Price B Price Total $1.50 $1.00 Expenditures 0 $12 12 12 12 12 12 Key Terms 12 10 Quantity of A Appendix Previous Slide Next Slide End Show 21 appendix - Copyright McGraw-Hill/Irwin, 2005 Quantity of B 10 12 THE BUDGET LINE: What is Attainable The Budget Line: What is Attainable Indifference Curves: What is Preferred Equilibrium at Tangency Deriving the Demand Curve Units of Units of A Price B Price Total $1.50 $1.00 Expenditures 0 $12 12 12 12 12 12 Key Terms 12 10 Quantity of A Appendix Previous Slide Next Slide End Show 21 appendix - Copyright McGraw-Hill/Irwin, 2005 Quantity of B 10 12 THE BUDGET LINE: What is Attainable The Budget Line: What is Attainable Indifference Curves: What is Preferred Equilibrium at Tangency Deriving the Demand Curve Units of Units of A Price B Price Total $1.50 $1.00 Expenditures 0 $12 12 12 12 12 12 Key Terms 12 10 Quantity of A Appendix Previous Slide Next Slide End Show 21 appendix - Copyright McGraw-Hill/Irwin, 2005 Quantity of B 10 12 THE BUDGET LINE: What is Attainable The Budget Line: What is Attainable Indifference Curves: What is Preferred Equilibrium at Tangency Deriving the Demand Curve Units of Units of A Price B Price Total $1.50 $1.00 Expenditures 0 $12 12 12 12 12 12 Key Terms 12 10 Quantity of A Appendix Previous Slide Next Slide End Show 21 appendix - Copyright McGraw-Hill/Irwin, 2005 (Unattainable) (Attainable) Quantity of B 10 12 THE BUDGET LINE: What is Attainable The Budget Line: What is Attainable Indifference Curves: What is Preferred Equilibrium at Tangency Deriving the Demand Curve Key Terms Previous Slide Units of Units of A Price B Price Total $1.50 $1.00 Expenditures 0 $12 10 e 12 m o c n i n 12 as8e i f (Unattainable) o e e s r a c h n I 12 c r u An p h t e o h b t 12 ke12 s r or e h t ma i e f e o l b e i r s s mo o p (Attainable) s m e t i Next Slide End Show 21 appendix - 12 Quantity of A Appendix Copyright McGraw-Hill/Irwin, 2005 Quantity of B 10 12 THE BUDGET LINE: What is Attainable The Budget Line: What is Attainable Indifference Curves: What is Preferred Equilibrium at Tangency Deriving the Demand Curve Units of Units of A Price B Price Total $1.50 $1.00 Expenditures 12 $12 10 3Pric 12e ch a nges c a c6 ha12 ause (Unattainable) nge i8n de9ma12n the quanti ty 12 12 ded of t Key Terms Quantity of A Appendix Previous Slide Next Slide End Show 21 appendix - Copyright McGraw-Hill/Irwin, 2005 he item s (Attainable) Quantity of B 10 12 INDIFFERENCE CURVES What is Preferred The Budget Line: What is Attainable Indifference Curves: What is Preferred Equilibrium at Tangency Deriving the Demand Curve Key Terms Units of Units of A Price B Price Total $1.50 $1.00 Expenditures An Indifference Schedule Combination j Previous Slide $12 12 12 12 12 12 Units of A Units of B 12 Next Slide End Show 21 appendix - 10 Copyright McGraw-Hill/Irwin, 2005 j 12 10 Quantity of A Appendix 2 Quantity of B 10 12 The Budget Line: What is Attainable Indifference Curves: What is Preferred Equilibrium at Tangency Deriving the Demand Curve Key Terms Previous Slide What is Preferred Units of Units of A Price B Price Total $1.50 $1.00 Expenditures An Indifference Schedule Combination Next Slide End Show 21 appendix - 11 $12 12 12 12 12 12 j k Units of A Units of B 12 Copyright McGraw-Hill/Irwin, 2005 j 12 10 Quantity of A Appendix INDIFFERENCE CURVES k 2 Quantity of B 10 12 The Budget Line: What is Attainable Indifference Curves: What is Preferred Equilibrium at Tangency Deriving the Demand Curve Key Terms Previous Slide What is Preferred Units of Units of A Price B Price Total $1.50 $1.00 Expenditures An Indifference Schedule Combination Next Slide End Show 21 appendix - 12 $12 12 12 12 12 12 j k l Units of A Units of B 12 4 Copyright McGraw-Hill/Irwin, 2005 j 12 10 Quantity of A Appendix INDIFFERENCE CURVES k l 2 Quantity of B 10 12 The Budget Line: What is Attainable Indifference Curves: What is Preferred Equilibrium at Tangency Deriving the Demand Curve Key Terms Previous Slide Next Slide End Show 21 appendix - 13 What is Preferred Units of Units of A Price B Price Total $1.50 $1.00 Expenditures 0 $12 12 12 12 12 12 An Indifference Schedule Combination Units of A j k l m 12 Units of B Copyright McGraw-Hill/Irwin, 2005 j 12 10 Quantity of A Appendix INDIFFERENCE CURVES k l m 2 Quantity of B 10 12 The Budget Line: What is Attainable Indifference Curves: What is Preferred Equilibrium at Tangency Deriving the Demand Curve Key Terms Previous Slide Next Slide End Show 21 appendix - 14 What is Preferred Units of Units of A Price B Price Total $1.50 $1.00 Expenditures 0 $12 12 12 12 12 12 An Indifference Schedule Combination Units of A j k l m 12 Units of B Copyright McGraw-Hill/Irwin, 2005 j 12 10 Quantity of A Appendix INDIFFERENCE CURVES k l m I 2 Quantity of B 10 12 The Budget Line: What is Attainable Indifference Curves: What is Preferred Equilibrium at Tangency Deriving the Demand Curve Key Terms Previous Slide Next Slide End Show 21 appendix - 15 What is Preferred Units of Units of A Price B Price Total $1.50 $1.00 Expenditures 0 $12 12 12 12 12 12 An Indifference Schedule Combination Units of A j k l m 12 Units of B Copyright McGraw-Hill/Irwin, 2005 j 12 10 Quantity of A Appendix INDIFFERENCE CURVES k The slope represents the marginal rate of substitution, (MRS) l m I2 I1 Quantity of B 10 12 Appendix The Budget Line: What is Attainable INDIFFERENCE CURVES What is Preferred Units of Units of A Price B Price Total $1.50 $1.00 Expenditures 12 Quantity of A $12 Indifference 10 12 Curves: What is Preferred 12 er m u Equilibrium at s 2e co9n 12 ome, Tangency c th0 12er in f I 12 Deriving the or eat r r Indifference e g h t d An i a e 4ld h f u o o eSchedule c Key Terms r s o t CombiUnits Units c m nation oof d u of B d A r e p s h a t h bo j p12urc e b k Next Previous Demand Curve Slide Slide End Show 21 appendix - 16 l m Copyright McGraw-Hill/Irwin, 2005 I1 Quantity of B 10 12 INDIFFERENCE CURVES What is Preferred The Budget Line: What is Attainable Indifference Curves: What is Preferred Equilibrium at Tangency Deriving the Demand Curve Key Terms Previous Slide Units of Units of A Price B Price Total $1.50 $1.00 Expenditures 0 $12 12 12 12 12 igh12er 12 10 Quantity of A Appendix h A An Indifference n o i t Schedule a n i b com 2ll i w jcho 12ice2s of k e4 rred0 f e r p bl e Combination Units of A Units of B Next Slide End Show 21 appendix - 17 m I4 I3 Copyright McGraw-Hill/Irwin, 2005 I2 I1 Quantity of B 10 12 The Budget Line: What is Attainable Indifference Curves: What is Preferred Equilibrium at Tangency Previous Slide Units of Units of A Price B Price Total $1.50 $1.00 Expenditures 12 $12 10 12 12 ily12of all am f 6s of A n 12 re12ssio p x e e h b n a suc c e c n e r e y f f r i e d v e in r o f d e p o l e v e d j 12 f2income o l e v k le Next Deriving the Demand Curve Key Terms What is Preferred An Indifference Schedule Combination Slide End Show 21 appendix - 18 l m Units of A An Indifference Map Quantity of A Appendix INDIFFERENCE CURVES I4 I3 Units of B Copyright McGraw-Hill/Irwin, 2005 I2 I1 Quantity of B 10 12 The Budget Line: What is Attainable Indifference Curves: What is Preferred Equilibrium at Tangency Deriving the Demand Curve Key Terms Previous Slide Next Slide End Show 21 appendix - 19 Units of Units of A Price B Price Total $1.50 $1.00 Expenditures 0 $12 12 12 12 12 12 An Indifference Schedule Combination Units of A j k l m 12 Units of B Copyright McGraw-Hill/Irwin, 2005 12 10 Quantity of A Appendix EQUILIBRIUM AT TANGENCY (Unattainable) I4 I3 I2 (Attainable) I1 Quantity of B 10 12 The Budget Line: What is Attainable Indifference Curves: What is Preferred Equilibrium at Tangency Deriving the Demand Curve Key Terms Previous Slide Equilibrium 12 occurs when the consumer 10 selects the combination which reaches the highest attainable indifference curve Next Slide End Show 21 appendix - 20 (Unattainable) Quantity of A Appendix EQUILIBRIUM AT TANGENCY Copyright McGraw-Hill/Irwin, 2005 I4 I3 I2 (Attainable) I1 Quantity of B 10 12 What happens if the price of B increases to $1.50? The Budget Line: What is Attainable Indifference Curves: What is Preferred The budget line rotates reflecting the reduction in the quantity of B units which is attainable 12 PriceB QuantityB 10 $1.00 Equilibrium at Tangency Deriving the Demand Curve Key Terms Quantity of A Appendix EQUILIBRIUM AT TANGENCY I3 Previous Slide Next Slide End Show 21 appendix - 21 Copyright McGraw-Hill/Irwin, 2005 Quantity of B 10 12 What happens if the price of B increases to $1.50? The Budget Line: What is Attainable Indifference Curves: What is Preferred Equilibrium at Tangency PriceB QuantityB 10 $1.00 1.50 Deriving the Demand Curve Key Terms Previous Slide Next Slide End Show 21 appendix - 22 The budget line rotates reflecting the reduction in the quantity of B units which is attainable 12 Quantity of A Appendix EQUILIBRIUM AT TANGENCY By recording the various quantities demanded at the various prices yields the Demand schedule Copyright McGraw-Hill/Irwin, 2005 I3 I2 Quantity of B 10 12 DERIVING THE DEMAND CURVE Appendix What happens if the price of B increases to $1.50? The Budget Line: What is Attainable Indifference Curves: What is Preferred Equilibrium at Tangency Price of B PriceB QuantityB $1.00 1.50 Deriving the Demand Curve 1.00 Key Terms Previous Slide Next Slide End Show 21 appendix - 23 $1.50 Plotting the Points yields the Demand Curve for Product B By recording the various quantities demanded at the various prices yields the demand schedule Copyright McGraw-Hill/Irwin, 2005 DB Quantity of B 10 12 Key Terms budget line indifference curve marginal rate of substitution (MRS) indifference map equilibrium position Copyright McGraw-Hill/Irwin, Inc 2005 BACK END ... $12 10 3Pric 12e ch a nges c a c6 ha12 ause (Unattainable) nge i8n de9ma12n the quanti ty 12 12 ded of t Key Terms Quantity of A Appendix Previous Slide Next Slide End Show 21 appendix - Copyright... Quantity of A Appendix h A An Indifference n o i t Schedule a n i b com 2ll i w jcho 12ice2s of k e4 rred0 f e r p bl e Combination Units of A Units of B Next Slide End Show 21 appendix - 17... consumer 10 selects the combination which reaches the highest attainable indifference curve Next Slide End Show 21 appendix - 20 (Unattainable) Quantity of A Appendix EQUILIBRIUM AT TANGENCY Copyright