Category: Micro-Consumption

  Description This video explains how to build an Edgeworth box, and how to analyse it. We start from two sets of indifference curves, then build the Edgeworth box and, finally, introduce the contract curve. - In 1881, Francis Y. Edgeworth came up with a way of representing, using the same axis, indifference curves and the corresponding contract curve. He developed this model in his book “Mathematical Psychics: an Essay on the Application of Mathematics to the Moral Sciences”. However, the ...

  Description This video explains how to calculate and use the marginal rate of substitution (MRS). We start by learning how to calculate it, then move on to use it in order to properly draw indifference curves and, finally, we analyse the MRS for different kinds of indifference curves. - The marginal rate of substitution (MRS) can be defined as how many units of good x have to be given up in order to gain an extra unit of good y, while keeping the same level of utility. Therefore, it invol...

  Description This video explains how indifference curves work and how to build them. We start analysing indifference curves as a way of representing utility, then we explain what the marginal rate of substitution is and, lastly, what different kinds of indifference curves there are. - Indifference curves are lines in a coordinate system for which each of its points express a particular combination of a number of goods or bundles of goods that the consumer is indifferent to consume. This is...

  Description This video explains the very basics of consumer's preferences, and how to successfully build and understand a utility function. We start with basic rationality axioms, then we draw a utility function, and lastly we introduce the concept of indifference curves. - Utility is the ‘satisfaction’ we get from using, owning, or doing something. It is what allows us to choose between options. A preference function therefore assigns values to the ranking of a set of choices. This is us...