Demand curve or Marshallian demand function for u = max{x,y}

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Derive the demand curve or marshallian demand function for u = max{x,y} Continue reading →

Indifference curve for max function, u=max{x,y}

Draw an indifference curve for max function, u=max{x,y} Continue reading →

3 MRS conditions for Cobb Douglas, Perfect Complements and Perfect Substitutes

In the following videos, we try to find MRS for several utility functions, say, cobb douglas, perfect complements, perfect substitutes. MRS calculates the rate at which one good is substituted for another, keeping utility constant. MRS for Cobb Douglas changes at every point along an indifference curve. MRS for perfect complements is same along a vertical or horizontal strip, while it is not defined at the kink. In case of perfect substitutes, MRS is same along the entire indifference curve.

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MRS of perfect complements

Derive the MRS in case of perfect complements

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Indifference curve for perfect complements, where u=min{x,y}

Draw an indiffernce curve for perfect complements, where u=min{x,y} Continue reading →

4 questions about Normal goods,Inferior goods and Giffen goods

In following videos we define what are normal and inferior goods. As income increases, people shift away from inferior goods, while normal goods are those that have direct relation between income and quantity demanded. We also show how to derive Income offer curve and Engel curve for Normal and Inferior goods.

In the other video, we discuss giffen goods, which are exception to the law of demand.

Let us explore these concepts in detail in the following videos.

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MRS for perfect substitutes is a constant

show by an example that mrs for perfect substitutes is a constant Continue reading →

Perfect complements’ utility function u=min{ax,by}

why perfect complements have the utility function of the form u=min{ax,by} ? Continue reading →

Monotonicity of preferences and indifference curves

What is meant by monotonicity of preferences ? What does this imply about indifference curves? Continue reading →

Can two indifference curves cross

Can two indifference curves cross? Continue reading →

4 things you must know about the shape of different indifference curves

Here, we draw indifference curves of several utility functions. Well, our motivation is to draw them, picking up points and convincing ourselves, that yes, this is indeed the shape of an indifference curve.

We know it well, that, along an indifference curve, utility is constant, so, we choose any arbitrary value of a utility and then pick points of x and y, which, according to a given utility function, results in the same utility (as our choosen arbitrary utility)

Let us do this exercise for our basic preferences, say, perfect complements, perfect substitutes, max utility function and cobb douglas Continue reading →

2 concepts related to Marginal Utility

We will discuss two concepts related to marginal utility. Firstly, if you are given any utility function, how do you derive marginal utility of a commodity from it. Secondly, how can you derive marginal rates of substitution from marginal utilities. These concepts will help you in understanding theoretical background related to these two important basic concepts and then you will be able to apply it to any specific utility function. Continue reading →

What are Indifference curves

What are Indifference curves? Continue reading →

Budget set in case of taxes

This video explains the effect of tax, after the consumption of some amount of the product, on the budget set. Continue reading →

6 concepts related to budget line

In the following videos, we look at some basic concepts related to Budget line. In the first video, we distinguish between budget set and budget line and provide an economic intuition for slope of the budget line.

Then we try to look how budget line shifts if price of one of the commodity changes or if income of the consumer changes or there is a tax or subsidy on any one commodity or there is a rationing of any one product. These applications help us to understand how budget line shifts or rotates in different scenarios. Continue reading →

5 Basic questions of Introductory Consumer Theory

In the following videos we try look at five most basic questions of introductory consumer theory. We try to answer, when is the consumer rational? What are the different axioms which consumer preferences should satisfy for preferences to be rational?

Then, we look at what is utility? Can utility be represented by a number or it is only rank-based (ordinal)? We find that utility is ordinal. Continue reading →

Budget set in case of rationing

This video explains the shape of the budget set in case of rationing of any one of the product Continue reading →

Shift in budget line when taxes and subsidies are imposed

This video explains the affect of taxes and subsidies on budget line of the consumer. Continue reading →

5 Mathematical Derivation of Demand Curves of Cobb Douglas, Perfect Complements, Perfect Substitutes, Quasi-linear and max utility functions

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In the following videos we show how to derive marshallian demand vector of the form x*(p,m) and y*(p,m)

Budget equation is m=p1x + p2y

We have several utility functions. Our motive is to derive maximum utility subject to the budget or income given. Continue reading →

Shift in budget line when income changes

Suppose if income of the consumer increases, she can experience an expansion of her budget and hence budget line would move outwards in a parallel manner, assuming prices remain constant. Continue reading →