In these videos, we look at the model, where there is no outside income but the value of endowment defines consumer’s income.
First video, sets the base of the model by distinguishing between gross demand and net demand. Second video, discusses how to draw budget line in this model. Continue reading
For next two days we will discuss substitution and income effects. What are these? When the price of a good changes, it changes demand for that commodity. Well, this entire change can be broken down into two effects, one substitution effect and other income effect.
In these videos, we have presented the decomposition of price effect into substitution effect and income effect for normal goods, perfect complements and perfect substitutes. Continue reading
In these videos we discuss what is price consumption curve and how to derive demand curve from these. Price consumption curve is the locus of equilibrium points when price of one of the good changes.
One application of derivation of PCC and hence demand curve for perfect complements is also done for better understanding Continue reading
Draw an indifference curve for max function, u=max{x,y} Continue reading
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.
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.
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
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
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
Marginal rate of substitution (y for x) is the amount of y, individual gives up, for one more additional unit of x. MRSyx is the ratio of marginal utilities of x and y Continue reading
Along an indifference curve, utility is constant. At every point along an indifference curve, consumer derives same satisfaction. This video explains, what is an indifference curve, what is the meaning of MRS (Marginal rate of substitution) and how to calculate MRS Continue reading
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