ECON101 Lecture Notes - Lecture 10: Indifference Curve, Inferior Good, Normal Good
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The budget line describes the limits to the household"s consumption choices. A person can afford any point along the budget line or below it. You can not afford anything outdo of it. Budget equation: expenditure = income: call the price of pop p(pop), the quantity of pop q(pop), the price of a movie. All the points on the indifference curve are preferred to all the points below the indifference curve. All the points above the indifference curve are preferred to the points on the curve. The magnitude of the slop of the indifference curve measures the marginal rate of substitution. The diminishing mrs is the key assumption of consumer theory. Degree of sustainability: the shape of the indifference curve reveals the degree of sustainability between 2 goods, ordinary goods are smooth curves, perfect substitutes represent a line sloped down, perfect compliments" indifference curve is perfectly l shaped.