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Indifference Curves & Budget Lines
AP Microeconomics · Consumer Choice Theory
Learning Objectives
Indifference Curve: All combinations of two goods giving equal satisfaction. Curves further from origin = higher utility.
Budget Constraint: I = Pₐ·Qₐ + P_b·Q_b. The line shows all affordable combinations given income and prices.
Optimal Bundle: Where the highest indifference curve is tangent to the budget line. At this point: MRS = Pₐ/P_b.
MRS: Marginal Rate of Substitution = how many units of B the consumer would give up for 1 more unit of A while keeping utility constant.
Tags
IndifferenceBudgetMRSConsumer
Parameters
Income = $100
Price A = $5
Price B = $10
OPTIMAL BUNDLE
Good A:10
Good B:5
MRS = Pₐ/P_b:0.5
Budget Used:$100
Tangency Condition: The optimal consumption bundle is where the slope of the indifference curve (MRS) equals the slope of the budget line (Pₐ/P_b). This ensures the consumer cannot increase utility by trading one good for another.