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

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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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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 →

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 →