Chinese University of Hong Kong

1
Chinese University of Hong Kong
Postgraduate Diploma in Education
Course Educational Technology and Communication
(EDD5161F)
Instructor Professor Lee Fong Lok
Student name Fong Tze Wing
SCT (ECON) PTD Year 2
Student number 98059610
2
A-Level Economics
Subject
Indifference Curve Approach
Topic
Form Six
Target Students
3
Objective
After this lesson, the students should
i. understand the derivation and meaning of a
budget line.
ii. know how to find the utility-maximizing
consumption point.
iii. know the effect of change in income and
prices on the utility-maximizing consumption
point.
iv. understand the income effect and substitution
effect due to a change in price.
4
Why choosing this topic for presentation?
Since this topic requires students to learn the
graphical presentation of budget lines and
indifference curves, the students may find it
difficult to understand as they were just
promoted from certificate level.
By using Powerpoint presentation, teachers are
expected to present this abstract concept in the
lesson more clearly and effectively.
5
Derivation Of A Budget Line
6
1. Mr. A has 1000 money income (I) Px 5
Py 10 2. Suppose Mr. A spends all his
money income on good x good y, what
combinations of good x good y can be bought?
7
I 1000 Px 5 Py 10
Y
Budget Line
1000 10
100
40
X
?
0
120
200
1000 5
8
Do you know the meaning of a budget line now?
9
Budget Line -- Maximum combination of good X
good Y that can be bought by a consumer,
given his money income the prices of good
X good Y.
10
Slope of budget line
I Px .X Py .Y Y I / Py - ( Px / Py )X
Slope of BL -Px/Py
I Py
BL
I Px
11
Which combination of good X good Y should be
bought ?
Utility Maximization
Subject to Budget Constraint
12
How many good X good Y will give him the
highest utility level ?
13
To maximize utility under budget constraint
-gt How many X Y should be bought ?
a
.
.
b
.
d
.
e
.
f
BL
.
g
14
Utility - maximizing consumption point
Y1
X1
15
When will the consumption point change ?
A. ? in Money Income
B. ? in Px
C. ? in Py
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? in Money Income
I2 1500
150
? slope of BL ??
Y2
U2
BL2
BL1
X2
300
17
? in Px
Y2
400
X2
18
? in Py
80
Y2
BL2
X2
19
Price
Qx
Relative Price of good X in terms of good y
Qx
Substitution Effect

Qx
( if normal good )
Real Income
( if inferior good )
Qx

Income Effect
20
Real income remains unchanged , relative price
SE

Relative price remains unchanged, real income
IE

X is a normal good !
E2
X3
SE
IE
21
How about if Good X is an inferior good
?
22
Just find the ANSWER by YOURSELVES!
23
End of Powerpoint Presentation in the topic
indifference curve approach By Fong Tze Wing