7.2 Indifference curves and budget lines

With the help of a diagram, evaluate the use of indifference curve analysis to explain the relationship between a change in the price of a product and the change in an individual consumer's demand for this product. [20]

With the help of an indifference curve diagram, assess the extent to which a rise in price would affect the demand for a normal good differently from the demand for a Giffen good. [20]

Evaluate the use of indifference curve analysis to derive the demand curve for a normal good and the demand curve for an inferior good. [20]

A rational consumer will always purchase less of an item as the price increases.

Discuss, with the use of indifference curve analysis, whether this statement is correct. [25]

a) Explain what economists mean by indifference curves and budget lines and evaluate whether they might be used together to support rational consumer decision making. [12]

b) Use indifference theory to analyse the view that the demand for an inferior good is likely to be more price inelastic than the demand for a normal good. [13]

b) Use indifference curve analysis to discuss whether the demand curve for a good will always slope downwards. [13]

a) Explain the theory of how a consumer decides to achieve the situation described as 'equilibrium' when purchasing two different products. [12]

b) Two shops sell clothes. One has luxury fashionable designs. The other has cheaper inferior alternatives. Both shops decided to have promotional sales with price reductions. Consider how indifference curve analysis could be used to explain a consumer's reaction to both the price reductions. [13]

a) Explain what is meant by the concept of the 'equilibrium position of a consumer' and how the concept might be used to construct a demand curve for a good. [12]

b) Distinguish between the income and substitution effects of a change in a good's price and analyse why the effect of a change in price is not always the same for different goods. [13]

a) Use indifference curve analysis to explain how an individual's demand curve for an inferior good is derived. [12]