(A Level) Utility and indifference curves

Learning objectives

Define and calculate total and marginal utility and explain diminishing marginal utility

Apply the equi-marginal principle MUx ÷ Px = MUy ÷ Py to find the utility-maximising combination of goods and derive an individual demand curve

Explain the limitations of marginal utility theory and of its assumption that consumers behave rationally

Draw indifference curves and budget lines, explain what shifts or pivots a budget line, and find the optimum where the budget line touches the highest attainable indifference curve

Split the price effect into income and substitution effects for normal, inferior and Giffen goods, and explain the limitations of indifference curve analysis