What to explore
Change parameters and watch the model adjust.
- Income, prices, and preference weights on the two goods
- Shock sizes for income and relative-price comparisons
Advanced microeconomics
Consumer Choice and Indifference Curves
A utility-maximisation model with budget constraints, indifference curves, and demand responses to changes in prices and income.
Focus
Budget lines, tangency, and demand response
Adjust tastes, prices, and income to compare interior and corner solutions, then track how optimal bundles and indirect utility move.Interactive diagram
Consumer Choice
How to read this
The budget line shows every bundle of the two goods that exactly spends the income m at prices px and py. Anything below it is affordable; anything above is out of reach. Its slope, −px/py, is the market's exchange rate between the goods.
An indifference curve collects bundles the consumer likes equally. With Cobb-Douglas tastes the curves bow inward, and the best affordable bundle is the tangency: the point where the curve's slope (the marginal rate of substitution) equals the price ratio. That balance is the whole lesson — trade goods until your willingness to swap matches the market's terms.
With perfect substitutes the curves are straight lines, and tangency generally can't happen: the consumer simply buys whichever good delivers more utility per dollar, pushing the optimum to a corner of the budget set. Slide the prices until the two utility-per-dollar numbers meet and the whole budget line lights up as equally good — infinitely many optima.
Microeconomic markets and power
Step 5 of 7
Core ideas
Interpret the mechanics before you chase the graphs.
- Optimal bundles balance the marginal rate of substitution against the price ratio when the solution is interior.
- Corner solutions appear when the agent is pushed to consume mostly one good.
- Demand curves emerge from repeated utility maximisation under changing budgets and prices.
Learning goals
What this model should help students internalize.
- Solve the household problem under Cobb-Douglas or near-corner preference shifts.
- Interpret tangency and corner cases using budget lines and indifference curves.
- Connect parameter changes to Marshallian demand and welfare.
Prerequisites
Concepts to review before diving in.
- Price-theory equilibrium intuition
- Comfort with utility functions and constrained optimisation
Open the full interactive notebook (Python · loads on demand)
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