Question

Using indifference curve analysis, show diagrammatically the effect on consumer’s
equilibrium of a decrease in the price of an inferior commodity ?​

Answer 1

Explanation:

What Is an Indifference Curve?

People cannot really put a numerical value on their level of satisfaction. However, they can, and do, identify what choices would give them more, or less, or the same amount of satisfaction. An indifference curve shows all combinations of goods that provide an equal level of utility or satisfaction.

For example, Figure 1 presents three indifference curves that represent Lilly’s preferences for the tradeoffs that she faces in her two main relaxation activities: eating doughnuts and reading paperback books. Each indifference curve (Ul, Um, and Uh) represents one level of utility. First we will explore the meaning of an individual indifference curve and then we will look at the relationship between different indifference curves.