RUSS ROBERTS

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Theory of the Consumer

Introduction

These notes assume a basic understanding of budget lines and indifference curves. One place to go online for this information is http://en.wikipedia.org/wiki/Indifference_curve. What follows is calculus-free. At times this means that the discussion gets a little tedious but hang in there or skip ahead.

The Slope of the Indifference Curve

Think about Fred’s indifference curve. The slope of Fred’s indifference curve is the value to Fred of a little more hamburger, measured in terms of french fries. The slope is how much Fred is willing to pay to get a little bit more hamburger. Instead of being measured in money, it is measured in french fries. We will be comparing value and cost and because the true cost of a hamburger to Fred is the french fries he must give up, it is useful to measure the value of a hamburger in french fries also.

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