Topic Two (1.2): Indifference Curves
Introduction
In this topic, you will explore indifference curves and budget lines. You will learn how to explain the causes of a shift in the budget line and how to analyse the income, substitution and price effects on normal, inferior and Giffen goods. You will also evaluate the limitations of model of indifference curves.
Task
Economics in Context
- Read the article on page 309 of the textbook and consider how products such as Oreo cookies are changed for different markets, for example how McDonald’s make changes to their product ranges to suit different countries.
- Further guidance and suggested answers can be found in the digital textbook and in General Resources.
Watch
Now watch these videos on indifference curves and budget lines and make notes:
WATCH – Marginal Revolution University: Indifference Curves (YouTube) Links to an external site.
WATCH – Marginal Revolution University: Budget Constraints (YouTube) Links to an external site.
Read and Make Notes
Read and make notes from the following sections of the textbook on pages 309 to 314:
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- 31.1 Indifference curves;
- 31.2 Budget lines;
- 31.3 The income and substitution effects of a price change;
- 31.4 Limitations of the model of indifference curves.
Glossary
Highlight any new terminology on your glossary.
Activities in the Book
- It is important that you complete Activities 31.1, 31.2 and 31.3 in the textbook.
- Suggested answers can be found in the digital textbook and in General Resources.
Task
Think Like an Economist
- Read and complete the ‘Think like an Economist’ task on page 314 of the textbook. This task asks you to consider the impact on farmers and food retailers of the popularity of veganism in the UK.
- Suggested answers can be found in the digital textbook and in General Resources.
Consolidate
- Please now have a go at the exam-style questions on pages 315 to 316 of the textbook.
- Suggested answers can be found in the digital textbook and in General Resources.
Reflect
- Draw up a table like the one on page 316 of the textbook and complete the self-evaluation.
- If there are any areas about which you are unsure, please go back over your notes, the textbook and the resources listed in this topic before moving on.