Question

Explain the indifference curve and its relationship to the demand curve, using an example.

Answer 1

Answer) Indifference curves can be used to develop a demand curve. If we presume a basket of only two types of good and hold income constant, we can derive a demand curve which indicates the quantity demanded a good at different prices.

we integrate data for the budget lines and indifference curves we can create when a consumer is in equilibrium and maximising their utility.

We can use the data from the Pant and shirt example.

Reveal figures for budget line and indifference curve

Graphically, equilibrium will be where the budget line is at a tangent to the relevant indifference curve, as shown above:

In the Pant - shirt example, with income at 400, the price of x (Pant) at 20, and the price of y (shirt) at 5, equilibrium will be at 32y and 12x.

This is the only level at which the gradient of the budget line and indifference curve is similar.

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