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Preference of Consumer: IC or Indifference Map Video Lecture | SSC CGL Tier 2 - Study Material, Online Tests, Previous Year
FAQs on Preference of Consumer: IC or Indifference Map Video Lecture - SSC CGL Tier 2 - Study Material, Online Tests, Previous Year
| 1. What is an indifference map? |  |
An indifference map is a graphical representation used in economics to show a consumer's preferences for different combinations of goods or services. It consists of a series of indifference curves, each representing a particular level of satisfaction or utility. The curves are downward sloping and convex to the origin, indicating that the consumer is willing to trade off one good for another as long as their overall satisfaction remains the same.
| 2. How is consumer preference represented on an indifference map? | |
Consumer preference is represented on an indifference map through the shape and position of the indifference curves. Each curve shows combinations of goods or services that provide the consumer with the same level of satisfaction. Higher curves indicate higher levels of utility or satisfaction, while lower curves represent lower levels. The slope of the indifference curve at any point indicates the consumer's marginal rate of substitution, which represents their willingness to give up one good for another.
| 3. What factors influence consumer preference on an indifference map? | |
Several factors influence consumer preference on an indifference map. These include the consumer's income, the prices of goods or services, and their individual tastes and preferences. Changes in income or prices will shift the entire indifference map, while changes in tastes or preferences will alter the shape and position of the indifference curves. For example, an increase in income may lead to a higher level of satisfaction for all combinations of goods, causing the indifference curves to shift outward.
| 4. How can an indifference map be used to analyze consumer choices? | |
An indifference map can be used to analyze consumer choices by comparing different combinations of goods or services on the map. Consumers will typically choose the combination that lies on the highest indifference curve within their budget constraint. This represents the combination that provides them with the greatest level of satisfaction given their income and the prices of goods. By comparing different points on the map, economists can determine the optimal choices for consumers based on their preferences and constraints.
| 5. Can an indifference map be used to predict consumer behavior accurately? | |
While an indifference map provides valuable insights into consumer preferences and choices, it may not always accurately predict consumer behavior. This is because consumer preferences are subjective and can vary among individuals. Additionally, real-world factors such as income changes, price fluctuations, and new product introductions can significantly influence consumer choices. However, an indifference map serves as a useful tool for understanding the basic principles of consumer behavior and analyzing the trade-offs consumers make when faced with different choices.
Text Transcript from Video
okay with this problem we're gonna do a
utility maximization and budget
constraint with different with budget
concerning a difference curves just a
graph graphing question this is taken
from Krugman Wells microeconomics 2nd
edition chapter 3 which is the consumer
preferences and consumer choice chapter
question 11 question starts with Tyrone
is a utility Maximizer his incomes 100
bucks and you can spend on cafeteria
meals and on notepad so Ike it's been on
two Goods each meal cost five dollars of
the cafeteria in each notepad cost two
dollars
I think prices tyrone chooses to buy
sixteen cafeteria meals and 10 new pets
so all this is info important info part
a draw a diagram that shows Tyrone's
choice using in a difference curve and
his budget line placing notepads on the
vertical axis and cafeteria meals on the
horizontal axis axis label the
indifference curve I sub one in the
budget line BL sub 1 so look what I did
here so first off we got quantity of
notebooks notepads on the vertical axis
remember that they're two dollars each
and then quantity of cafeteria meals on
the horizontal axis remember that
they're ten dollars each so everything
here okay so first is the let's see the
budget constraint so if we're told this
Tyrone has $100 so that means in terms
of notepads if you were to spend all
this money on no pants you don't forget
15 notepads you know it's it's $100
income divided by the cost so the
intersection the intersection on the
notepad axis the vertical axis is when
we had 50 because if he spent zero money
on cafeteria meals
we'll buy 50 no pads and then where does
the budget constraint intersect on the
horizontal axis on the quantity of
cafeteria meals
well if Tyrone spends his full $100 on
cafeteria meals and each one cost so
five dollars so 100 divided by five is
20
so if Tyrone it's been no money
whatsoever on dope heads and all of his
money on cafeteria notes you'll be able
to get 20 meals so the budget constraint
is this line right here and the idea is
that any point beyond the budget
constraint of a dentist era Tory is not
affordable to Tyrone and then any area
within the budget constraint and this
triangle down here
Tyrone wouldn't be maximizing his
utility because he wouldn't be spending
all of his income okay so that's a bunch
of constraint now let's think about the
indifference curve so the indifference
curve we're going to placed here and
we're told in the question that Tyrone
maximizes you maximizing as utility ends
up with ten notepads and sixteen
cafeteria meals so we're gonna place the
indifference curve so that it's tangent
at the budget line at ten notepads and
sixteen cafeteria bills and then note
that we know that 10 yo pads and 16
cafeteria meals is on the budget line
because if he turn one spends ten bucks
sorry if he spends part of his income on
ten no pads eats no bad costs two bucks
so it's 20 bucks being spent on no pads
okay so 20 bucks are being spent on no
beds one hundred bucks total
so that leaves 80 dollars so with 80
dollars left how many cafeteria notes is
I get that gets 16 cafeteria meals so
Tyrone is gonna get up all of his income
hundred dollars buying Tendo pads and
sixteen cafeteria meals so you got this
indifference curve right here exactly
tangent to the budget line cool so
moving on to Part B which I kind of
already did down here already Part B the
price of notepads falls to one dollar so
when each Nomad is a dollar each now the
price of cafeteria meals remains the
same so it's sila five dollars and then
on the same diagram draw Tyrone's budget
line with a new label blh so labeling it
with blh okay so let's go through the
steps to figure out a budget line so if
the price of notepads has fallen to one
then the intersection on the horizontal
so on the vertical axis is going to be
at 100
so if Tyrone were to spend $0 on
cafeteria meals and its entire $100 on
on notepads he'd be able to buy a
hundred notepads here if Tyrone and zero
dollars on notepads so down here and
that's full $100 on cafeteria meals at
five dollars each he'd be able to get 20
so this new line right here
BLS of H is going to be the new budget
line given this change in price
so with a decrease in the price of
something you can see that the budget
constraint the budget line has expanded
out so moving on to Part C lastly
Tyrone's income Falls to $90 on the same
diagram draw this budget line with this
new income and new prices and labeled B
L sub 2 and then is he worse off so I'll
get to that in a second so let's draw
the new diagram first off I'm going to
change the color just to kind of show
it's old th there
okay so what's the new budget line gonna
look like so first off what we do is
Tyrone has $90 now if you were to spend
all of his money on notepads you know
eats no bad cost dollar spend all his
money on notepads he's gonna have to be
able to buy 19 no pets
okay so $90 or no pads if you were to
spend all this money on cafeteria meals
what's 90 divided by five dollars that's
80 Tyrone would be able to get 18 meals
if you were to spend all this $90 on
just meals so now the new budget line is
the line that I'm trying now and see you
again
so this dark blue line here is the new
budget line once again if you were to
spend $0 on cafeteria meals and all of
his $90 on new pants
you'd be able to buy 90 notepads because
each is a dollar and then all this
interest at this point over here is if
you were to spend zero dollars on no
fats at all of those $90 on those
cafeteria meals at five dollars each so
here's a new budget line so once again
we're at this new budget line down here
okay
his high rune better off or not well
he's gonna be better off and hopefully I
could show to you really really clearly
okay so I'm gonna draw in the new
indifference curve so remember we assume
that indifference curves are always
expanding out this way and each
indifference curve further out is going
to represent a higher total utility so
this is the new possible curve right
here okay so this is kind of like the
highest indifference curve line point
that's still tangent to the new budget
line so is he better off at this point
or not so the kind of optimal
consumption bundle is about here so you
know maybe 20 30 or so no pads and then
fewer cafeteria meals so maybe like 15
or 14 or 13 cafeteria meals so he's
definitely increased consumption of
notepads
and he's decreased consumption of
cafeteria meals so at this point how you
know what can we say can we be sure that
he's had a better you know and a better
point or not and we can say we can be
sure that he's had a better consumption
bundle here with the decreasing income
and lower price and no pads the reason
why we can tell is first off think about
that old point over there you know so
this is the thing we're comparing to
usually better off here than he was over
here so at this old point that he was at
over here that's still possible you know
10 notepads and 16 meals is still
possible in this setup however he's not
choosing to get this point because
there's a point over here that
represents this higher income this new
indifference curve point indifference
curves any indifference curve that's
further out away from the origin the
origin being down in this
any difference Kermit's further out
represents higher utility so because
this new indifference curve is further
out from than the old one it implies
that higher utility implying that he's
better off
so the main thing is that then we have a
new budget line such that the old you
know point that we started off with is
still possible but it's the new budget
line puts us into utility space out here
that's past the old indifference line so
you can see the light pink in the
background is the old indifference line
and our new budget line is further
deeper into the higher utility territory
so it could be absolutely certain that
this situation you know the lowering
price of note pads and unfortunately
lower income puts Tyrone at a higher
income point so we're sort of higher
utility Federoff point so Part D s given
intuitive explanation for your answer to
Part C so remember there's two effects
here there's the decrease in income from
100 to 90 but then there's also the
decrease in price of no-pants from $2
per no bad to $1.00 per new pet so
obviously the decrease in income from
100 to 90 is potentially putting Tyrone
in a better in a Warsaw situation
however the decrease in price of
no-pants is more than compensated for
this so the decrease in the price of
notepads has increased
Tyrone's purchasing power so Tyrone's
richer in like a real sense now the fall
hence in the price of notepads has been
large enough so that once he changes the
consumption towards no more notepads and
fewer meals he is more than compensated
for the fall in his income level you
know at this higher utility point here
so hopefully that was helpful let me
know if you have any questions thanks
and have a good day
utility maximization and budget
constraint with different with budget
concerning a difference curves just a
graph graphing question this is taken
from Krugman Wells microeconomics 2nd
edition chapter 3 which is the consumer
preferences and consumer choice chapter
question 11 question starts with Tyrone
is a utility Maximizer his incomes 100
bucks and you can spend on cafeteria
meals and on notepad so Ike it's been on
two Goods each meal cost five dollars of
the cafeteria in each notepad cost two
dollars
I think prices tyrone chooses to buy
sixteen cafeteria meals and 10 new pets
so all this is info important info part
a draw a diagram that shows Tyrone's
choice using in a difference curve and
his budget line placing notepads on the
vertical axis and cafeteria meals on the
horizontal axis axis label the
indifference curve I sub one in the
budget line BL sub 1 so look what I did
here so first off we got quantity of
notebooks notepads on the vertical axis
remember that they're two dollars each
and then quantity of cafeteria meals on
the horizontal axis remember that
they're ten dollars each so everything
here okay so first is the let's see the
budget constraint so if we're told this
Tyrone has $100 so that means in terms
of notepads if you were to spend all
this money on no pants you don't forget
15 notepads you know it's it's $100
income divided by the cost so the
intersection the intersection on the
notepad axis the vertical axis is when
we had 50 because if he spent zero money
on cafeteria meals
we'll buy 50 no pads and then where does
the budget constraint intersect on the
horizontal axis on the quantity of
cafeteria meals
well if Tyrone spends his full $100 on
cafeteria meals and each one cost so
five dollars so 100 divided by five is
20
so if Tyrone it's been no money
whatsoever on dope heads and all of his
money on cafeteria notes you'll be able
to get 20 meals so the budget constraint
is this line right here and the idea is
that any point beyond the budget
constraint of a dentist era Tory is not
affordable to Tyrone and then any area
within the budget constraint and this
triangle down here
Tyrone wouldn't be maximizing his
utility because he wouldn't be spending
all of his income okay so that's a bunch
of constraint now let's think about the
indifference curve so the indifference
curve we're going to placed here and
we're told in the question that Tyrone
maximizes you maximizing as utility ends
up with ten notepads and sixteen
cafeteria meals so we're gonna place the
indifference curve so that it's tangent
at the budget line at ten notepads and
sixteen cafeteria bills and then note
that we know that 10 yo pads and 16
cafeteria meals is on the budget line
because if he turn one spends ten bucks
sorry if he spends part of his income on
ten no pads eats no bad costs two bucks
so it's 20 bucks being spent on no pads
okay so 20 bucks are being spent on no
beds one hundred bucks total
so that leaves 80 dollars so with 80
dollars left how many cafeteria notes is
I get that gets 16 cafeteria meals so
Tyrone is gonna get up all of his income
hundred dollars buying Tendo pads and
sixteen cafeteria meals so you got this
indifference curve right here exactly
tangent to the budget line cool so
moving on to Part B which I kind of
already did down here already Part B the
price of notepads falls to one dollar so
when each Nomad is a dollar each now the
price of cafeteria meals remains the
same so it's sila five dollars and then
on the same diagram draw Tyrone's budget
line with a new label blh so labeling it
with blh okay so let's go through the
steps to figure out a budget line so if
the price of notepads has fallen to one
then the intersection on the horizontal
so on the vertical axis is going to be
at 100
so if Tyrone were to spend $0 on
cafeteria meals and its entire $100 on
on notepads he'd be able to buy a
hundred notepads here if Tyrone and zero
dollars on notepads so down here and
that's full $100 on cafeteria meals at
five dollars each he'd be able to get 20
so this new line right here
BLS of H is going to be the new budget
line given this change in price
so with a decrease in the price of
something you can see that the budget
constraint the budget line has expanded
out so moving on to Part C lastly
Tyrone's income Falls to $90 on the same
diagram draw this budget line with this
new income and new prices and labeled B
L sub 2 and then is he worse off so I'll
get to that in a second so let's draw
the new diagram first off I'm going to
change the color just to kind of show
it's old th there
okay so what's the new budget line gonna
look like so first off what we do is
Tyrone has $90 now if you were to spend
all of his money on notepads you know
eats no bad cost dollar spend all his
money on notepads he's gonna have to be
able to buy 19 no pets
okay so $90 or no pads if you were to
spend all this money on cafeteria meals
what's 90 divided by five dollars that's
80 Tyrone would be able to get 18 meals
if you were to spend all this $90 on
just meals so now the new budget line is
the line that I'm trying now and see you
again
so this dark blue line here is the new
budget line once again if you were to
spend $0 on cafeteria meals and all of
his $90 on new pants
you'd be able to buy 90 notepads because
each is a dollar and then all this
interest at this point over here is if
you were to spend zero dollars on no
fats at all of those $90 on those
cafeteria meals at five dollars each so
here's a new budget line so once again
we're at this new budget line down here
okay
his high rune better off or not well
he's gonna be better off and hopefully I
could show to you really really clearly
okay so I'm gonna draw in the new
indifference curve so remember we assume
that indifference curves are always
expanding out this way and each
indifference curve further out is going
to represent a higher total utility so
this is the new possible curve right
here okay so this is kind of like the
highest indifference curve line point
that's still tangent to the new budget
line so is he better off at this point
or not so the kind of optimal
consumption bundle is about here so you
know maybe 20 30 or so no pads and then
fewer cafeteria meals so maybe like 15
or 14 or 13 cafeteria meals so he's
definitely increased consumption of
notepads
and he's decreased consumption of
cafeteria meals so at this point how you
know what can we say can we be sure that
he's had a better you know and a better
point or not and we can say we can be
sure that he's had a better consumption
bundle here with the decreasing income
and lower price and no pads the reason
why we can tell is first off think about
that old point over there you know so
this is the thing we're comparing to
usually better off here than he was over
here so at this old point that he was at
over here that's still possible you know
10 notepads and 16 meals is still
possible in this setup however he's not
choosing to get this point because
there's a point over here that
represents this higher income this new
indifference curve point indifference
curves any indifference curve that's
further out away from the origin the
origin being down in this
any difference Kermit's further out
represents higher utility so because
this new indifference curve is further
out from than the old one it implies
that higher utility implying that he's
better off
so the main thing is that then we have a
new budget line such that the old you
know point that we started off with is
still possible but it's the new budget
line puts us into utility space out here
that's past the old indifference line so
you can see the light pink in the
background is the old indifference line
and our new budget line is further
deeper into the higher utility territory
so it could be absolutely certain that
this situation you know the lowering
price of note pads and unfortunately
lower income puts Tyrone at a higher
income point so we're sort of higher
utility Federoff point so Part D s given
intuitive explanation for your answer to
Part C so remember there's two effects
here there's the decrease in income from
100 to 90 but then there's also the
decrease in price of no-pants from $2
per no bad to $1.00 per new pet so
obviously the decrease in income from
100 to 90 is potentially putting Tyrone
in a better in a Warsaw situation
however the decrease in price of
no-pants is more than compensated for
this so the decrease in the price of
notepads has increased
Tyrone's purchasing power so Tyrone's
richer in like a real sense now the fall
hence in the price of notepads has been
large enough so that once he changes the
consumption towards no more notepads and
fewer meals he is more than compensated
for the fall in his income level you
know at this higher utility point here
so hopefully that was helpful let me
know if you have any questions thanks
and have a good day
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