Indifference Curve

Consume at the same curve has the same utility.

# Slop of indifference curve

## Method 1

### Intuition

Marginal Rate of Substitution (MRS)

$MRS=\frac{dy/du}{dx/du}$

### Maths

$slop=-\frac{dy/du}{dx/du}$

## Method 2

$du=\frac{\alpha u}{\alpha x}dx+\frac{\alpha u}{\alpha y}dy=0 \;\;(u\;constant)$

$\therefore \frac{dy}{dx}=-\frac{{MU}_{x}}{{MU}_{y}}$

# Properties

- slop negative, which means x and y are both good goods, not bad goods.
- ICs can't cross.
- IC convex.
- For constant $\bar{y}$, as x increases, MRS decreases. (As x increases, y becomes more and more scarce, so need more x to exchange, thus MRS decreases.)

# Functions

The usual form of function to describe the IC is the Cobb-Douglas function

$u={x}^{\alpha}{y}^{1-\alpha}$

# See also

page revision: 6, last edited: 23 Apr 2009 03:31