- 1 Is a utility function the same as an indifference curve?
- 2 Where can I draw an indifference curve?
- 3 What is indifference curve with diagram?
- 4 What is the slope of an indifference curve?
- 5 What does a utility function tell you?
- 6 Why can’t indifference curves cross?
- 7 What is utility and its types?
- 8 Can an indifference curve be upward sloping?
- 9 What are perfect substitutes?
- 10 What is Mrs formula?
- 11 What will be the shape of indifference curve when two goods are perfect substitutes?
- 12 How do you calculate utility function?
- 13 How do you create a utility curve in Excel?
Is a utility function the same as an indifference curve?
To conclude, we see that the utility function and the indifference curves are not the same thing! The indifference curve is just a curve connecting points with the same utility level ( same value of u(x1,x2)) but for any such value we get a different IC while the utility function is kept the same.
Where can I draw an indifference curve?
That means that when constructing an indifference curve map, one must place one good on the X-axis and one on the Y-axis, with the curve representing indifference for the consumer wherein any points that fall above this curve would be optimal while those below would be inferior and the entire graph exists within the
What is indifference curve with diagram?
Definition: An indifference curve is a graph showing combination of two goods that give the consumer equal satisfaction and utility. Description: Graphically, the indifference curve is drawn as a downward sloping convex to the origin. The graph shows a combination of two goods that the consumer consumes.
What is the slope of an indifference curve?
The slope of the indifference curve is known as the MRS. The MRS is the rate at which the consumer is willing to give up one good for another. If the consumer values apples, for example, the consumer will be slower to give them up for oranges, and the slope will reflect this rate of substitution.
What does a utility function tell you?
In economics, utility represents the satisfaction or pleasure that consumers receive for consuming a good or service. Utility function measures consumers’ preferences for a set of goods and services. As a result, economists measure utility in terms of revealed preferences by observing consumers’ choices.
Why can’t indifference curves cross?
The indifference curves cannot intersect each other. It is because at the point of tangency, the higher curve will give as much as of the two commodities as is given by the lower indifference curve.
What is utility and its types?
Types of Utility. There are mainly four kinds of utility: form utility, place utility, time utility, and possession utility. These utilities affect an individual’s decision to purchase a product. This information is useful in placing product characteristics with real consumer requirements.
Can an indifference curve be upward sloping?
A set of indifference curves can be upward sloping if we violate assumption number three; more is preferred to less. When a set of indifference curves is upward sloping, it means one of the goods is a “bad” in that the consumer prefers less of the good rather than more of the good.
What are perfect substitutes?
A perfect substitute can be used in exactly the same way as the good or service it replaces. This is where the utility of the product or service is pretty much identical. For example, a one-dollar bill is a perfect substitute for another dollar bill.
What is Mrs formula?
The marginal rate of substitution is calculated using this formula: Where: X and Y represent two different goods. d’y / d’x = derivative of y with respect to x. MU = marginal utility of two goods, i.e., good Y and good X.
What will be the shape of indifference curve when two goods are perfect substitutes?
If two goods X and Y are perfect substitutes, the indifference curve is a straight line with negative slope, as shown in Figure 41 because the MRSXY is constant. The consumer is obsessed with the purchase of only one good. This is called monomania for that good.
How do you calculate utility function?
Marginal utility = total utility difference / quantity of goods difference
- Find the total utility of the first event.
- Find the total utility of the second event.
- Find the difference between both (or all) events.
- Find the difference between the number of goods between both (or all) events.
- Apply the formula.
How do you create a utility curve in Excel?
Click on the “Chart Tools: Design” tab, and click “Select Data.” Click “Remove Data” to delete the original chart information. Excel automatically selects data when creating a chart, but you want to specifically define the data used. Then click “Add” to add a new set of data to the chart.