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Eco 201 Online Quiz and Discussion (Budget constraint and others)—-6/3/2023

Eco 201 Online Quiz and Discussion (Budget constraint and others)—-6/3/2023
1) Briefly discuss the indifference curve(including its assumptions and criticisms)
2) Write short note on Budget constraint and utility maximization 
3) Extensively discuss the Cobweb theory.

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Comments 251

  1. Avatar Agbo Gift Obianuju says:

    Agbo Gift Obianuju
    2020/243000
    Css(Eco/Phil)
    agbogift2003@gmail.com
    1) An indifference curve is a graphical representation of a combination of two goods that offers the consumer equal satisfaction on consumption, thereby making the consumer indifferent. The consumer derives the same utility along the curve, for any combination. The concept of indifference curve was developed by British Economist Francis Y Edgeworth. It is a tool of microeconomics to demonstrate consumer preferences and the limitations of budget. Indifference curve analysis assumes that all other variables are constant and stable. The slope of the indifference curve is known are the marginal rate of substitution. The marginal rate of substitution is the rate at which the consumer is willing to give up one good for another.

    2)Given the goal of consumers is to maximize utility given their budget constraints, they seek that combination of goods that allows them to reach the highest indifference curve given their budget constraint. This occurs where the indifference curve is tangent to the budget constraint

    3)The cobweb model or cobweb theory is an economic model that explains why prices might be subject to periodic fluctuations in certain types of markets. It describes cyclical supply and demand in a market where the amount produced must be chosen before prices are observed. Producers’ expectations about prices are assumed to be based on observations of previous prices. Nicholas Kaldor analyzed the model in 1934, coining the term “cobweb theorem” (see Kaldor, 1938 and Pashigian, 2008), citing previous analyses in German by Henry Schultz and Umberto Ricci.

  2. Avatar Aleke Kizito Abuchi says:

    An indifference curve is a chart showing various combinations of two goods or commodities that leave the consumer equally well off or equally satisfied—hence indifferent—when it comes to having any combination between the two items that is shown along the curve.

    Indifference Curve Assumptions
    *The consumer is rational to maximize the satisfaction and makes a transitive or consistent choice.

    *The consumer is expected to buy any of the two commodities in a combination.

    *Consumers can rank a combination of commodities based on their satisfaction levels.

    Criticism Of Indifference curve
    It has been criticized for being an ‘old wine in a new bottle’ for it has merely rehashed the concept of diminishing marginal utility of a product in new terms.

    Budget constraint
    A budget constraint is an economic term referring to the combined amount of items you can afford within the amount of income available to you. For example, if you are a sales professional with a $1,000 budget for promotional items, this sets the upper limit on items you can purchase.

    Utility Maximization
    Utility maximization is a strategic scheme whereby individuals and companies seek to achieve the highest level of satisfaction from their economic decisions. For example, when a company’s resources are limited, management will implement a plan of purchasing goods or services that provides the maximum benefit.

    Cobweb Theory
    Cobweb theory is the idea that price fluctuations can lead to fluctuations in supply which cause a cycle of rising and falling prices. In a simple cobweb model, we assume there is an agricultural market where supply can vary due to variable factors, such as the weather.

  3. Avatar Okolie uchenna anthony. 2020/245322 says:

    1. What is is an indifference curve
    An indifference is a graphical representation of two commodities that have the same value or equal satisfaction.

    Indifference Curve Assumptions

    i.The consumer is rational to maximize the satisfaction and makes a transitive or consistent choice.
    ii..The consumer is expected to buy any of the two commodities in a combination.
    iii.Consumers can rank a combination of commodities based on their satisfaction levels.

    Criticism of indifference curve

    Indifference curves, like many aspects of contemporary economics, have been criticized for :
    i.oversimplifying or making unrealistic assumptions about human behavior.
    ii.For example, consumer preferences might change between two different points in time, rendering specific indifference curves practically useless.

    2. What is budget constraint

    In economics, a budget constraint represents all the combinations of goods and services that a consumer may purchase given current prices within his or her given income. Consumer theory uses the concepts of a budget constraint and a preference map as tools to examine the parameters of consumer choices.

    What is Utility maximization

    Utility maximization is a strategic scheme whereby individuals and companies seek to achieve the highest level of satisfaction from their economic decisions. For example, when a company’s resources are limited, management will implement a plan of purchasing goods or services that provides the maximum benefit.

    3. Cobweb theory

    The cobweb model or cobweb theory is an economic model that explains why prices might be subject to periodic fluctuations in certain types of markets. It describes cyclical supply and demand in a market where the amount produced must be chosen before prices are observed. Producers expectations about prices are assumed to be based on observations of previous prices.

  4. Avatar Okolie uchenna anthony. 2020/245322 says:

    Name:okolie uchenna anthony
    Reg no. 2020245322
    Dept. Business education
    Task: assignment

    1. What is is an indifference curve
    An indifference is a graphical representation of two commodities that have the same value or equal satisfaction.

    Indifference Curve Assumptions

    i.The consumer is rational to maximize the satisfaction and makes a transitive or consistent choice.
    ii..The consumer is expected to buy any of the two commodities in a combination.
    iii.Consumers can rank a combination of commodities based on their satisfaction levels.

    Criticism of indifference curve

    Indifference curves, like many aspects of contemporary economics, have been criticized for :
    i.oversimplifying or making unrealistic assumptions about human behavior.
    ii.For example, consumer preferences might change between two different points in time, rendering specific indifference curves practically useless.

    2. What is budget constraint

    In economics, a budget constraint represents all the combinations of goods and services that a consumer may purchase given current prices within his or her given income. Consumer theory uses the concepts of a budget constraint and a preference map as tools to examine the parameters of consumer choices.

    What is Utility maximization

    Utility maximization is a strategic scheme whereby individuals and companies seek to achieve the highest level of satisfaction from their economic decisions. For example, when a company’s resources are limited, management will implement a plan of purchasing goods or services that provides the maximum benefit.

    3. Cobweb theory

    The cobweb model or cobweb theory is an economic model that explains why prices might be subject to periodic fluctuations in certain types of markets. It describes cyclical supply and demand in a market where the amount produced must be chosen before prices are observed. Producers expectations about prices are assumed to be based on observations of previous prices

  5. Avatar Okechukwu Precious C. says:

    Name: Okechukwu Precious Chidera
    Reg no: 2020/241122
    Department: Business Education
    Faculty: Vocational and technical Education

    1.The consumer’s preferences for various product combinations are graphically represented by the indifference curve. It is a curve that displays all possible pairings of two commodities that provide the same amount of consumer happiness or utility. The following hypotheses form the foundation of the indifference curve:
    Rationality: By consuming the commodities, the customer seeks to maximize their utility.
    Completeness: All possible product combinations can be compared and ranked by the consumer.
    Transitivity states that if a customer chooses combinations A to B and B to C, they must choose A to C as well.
    Consuming more of one good reduces its marginal utility, requiring the consumer to consume more of the other good to maintain the same level of satisfaction. This is known as a declining marginal rate of substitution.
    The rationality and completeness presumptions made by the indifference curve have drawn criticism since they might not always hold true in actual circumstances. The curve’s application may be constrained by its restriction to just two goods.

    2.A consumer’s ability to spend money on products and services is restricted by their income and the cost of those things. This is known as a budget constraint. The process of selecting the combination of commodities that, given the budgetary restriction, offers the highest amount of happiness or utility is known as utility maximization. To get the most out of the many commodities, the consumer must divide their income among them.
    By evaluating the marginal value of each commodity against its price, the consumer can identify the best set of goods to combine. The price represents the potential cost of consuming that commodity, whereas the marginal utility quantifies the additional utility derived from consuming an additional unit of the good. The consumer maximizes their utility by consuming the goods that provide the most marginal utility per dollar.

    3.The Cobweb theory is a school of thought in economics that explains the cyclical nature of prices and output in some markets, such those for agricultural products. The following presumptions form the foundation of the theory:
    The decision to develop a good and its actual production happen at different times.
    In the short term, the good’s supply is fixed.The product’s demand is comparatively inelastic.
    According to the hypothesis, producers will respond to an initial increase in the price of the good by raising their production in the subsequent period. The supply will, however, be more than the demand because of the lag between the decision to produce and the actual production, which will result in a drop in price the following period. This will then cause production to drop, which will cause a shortage the following time around, and so on. It will keep happening until the market finds balance.
    The assumptions underlying the Cobweb hypothesis have drawn criticism since they could not always hold true in practical applications. Additionally, the theory does not take into consideration the possibility of demand variations or technical advancements that can impact the supply of the commodity.

  6. Avatar Nwabuisi Kaosisochukwu Celestine says:

    Nwabuisi kaosisochukwu Celestine
    2020/250260
    Business Education

    1. INDIFFERENCE CURVE
An indifference curve shows a combination of two goods in various quantities that provides equal satisfaction (utility) to an individual.
    ITS ASSUMPTIONS
. The consumer is rational to maximize the satisfaction and makes a transitive or consistent choice.
. Price of goods is constant
. Consumers spend a small part of their income.
. The marginal rate of substitution diminishes
. There is the possibility of substituting one good for another but there is no perfect substitution.
    ITS CRITICISMS
. Indifference curve is said to make unrealistic assumptions about human behaviour.
. It is unable to explain risky choices undertaken by the consumer.
. It has been criticized for being an ‘old wine in a new bottle’ for it has merely rehashed the concept of diminishing marginal utility of a product in new terms.

    2 The Budget Constraints
    represents all the combinations of goods and services that a consumer may purchase given current prices with his ot her given income.The budget constraints of a consumer can be written as
P1x1+P2X2≤m
Here P1X1 is the amount of money the consumer is spending on good 1 and P2X2 is the amount of money the consumer is spending on good 2.The budget constraint requires that the amount of money spent on the two goods be no more than the total amount the consumer has to spend.
Utility maximization is a point where the consumer derives maximum satisfaction when his or her marginal utility equals the price of the commodity.
Thus Mux=Pricex =D
Utility maximization is the attainment of the greatest possible total utility.The consumer are constrained by by the prices of goods and income.

    3.COBWEB THEORY
Cobweb theory is the idea that price fluctuations can lead to fluctuations in supply which cause a cycle of rising and falling prices.
ASSUMPTIONS OF COBWEB THEORY.
*In an agricultural market, farmers have to decide how much to produce a year in advance – before they know what the market price will be. (supply is price inelastic in short-term).
*A key determinant of supply will be the price from the previous year.
*A low price will mean some farmers go out of business. Also, a low price will discourage farmers from growing that crop in the next year.
*Demand for agricultural goods is usually price inelastic (a fall in price only causes a smaller % increase in demand.
In theory, the market could fluctuate between high price and low price as suppliers respond to past prices.
*Cobweb theory and price divergence.
Price will diverge from the equilibrium when the supply curve is more elastic than the demand curve, (at the equilibrium point). This is when cobweb theory is in “increasing volatility”,
If the slope of the supply curve is less than the demand curve, then the price changes could become magnified and the market more unstable.
*Cobweb theory and price convergence when the cobweb theory is in “decreasing volatility”
At the equilibrium point, if the demand curve is more elastic than the supply curve, we get the price volatility falling, and the price will converge on the equilibrium
LIMITATIONS OF COBWEB THEORY
1.Rational expectations. The model assumes farmers base next years supply purely on the previous price and assume that next year’s price will be the same as last year (adaptive expectations). However, that rarely applies in the real world. Farmers are more likely to see it as a ‘good’ year or ‘bad year and learn from price volatility.
2.Price divergence is unrealistic and not empirically seen. The idea that farmers only base supply on last year’s price means, in theory, prices could increasingly diverge, but farmers would learn from this and pre-empt changes in price.
    3.It may not be easy or desirable to switch supply. A potato grower may concentrate on potatoes because that is his speciality. It is not easy to give up potatoes and take to aubergines.
    4.Other factors affecting price. There are many other factors affecting price than a farmers decision to supply. In global markets, supply fluctuations will be minimized by the role of importing from abroad. Also, demand may vary. Also, supply can vary due to weather factors.
    5.Buffer stock schemes. Governments or producers could band together to limit price volatility by buying surplus
    Possible examples of Cobweb theory
*Housing
Housing is very inelastic and subject to booms and bust. In response to the housing boom in Ireland, supply increased. But, the price collapsed, leading to a big fall in the building of new housing. Tamari, (1981) argued there was evidence of cobweb nature of the Israeli housing market.

  7. Avatar Anih Fortune Kenechuwku says:

    Name: Anih Fortune Kenechukwu

    Reg Number: 2020/248273

    Department: Business Education

    Email address: fortunekenny111@gmail.com

    1. INDIFFERENCE CURVE

    An indifference curve shows a combination of two goods in various quantities that provides equal satisfaction (utility) to an individual.

    ASSUMPTIONS

    Monotonicity: The consumer’s preferences are monotonic, meaning they prefer more of a good to less of it.

    Convexity: The consumer’s preferences are convex, meaning they prefer a balanced combination of goods rather than extreme or lopsided combinations.

    Rationality: The consumer is rational, meaning they can rank their preferences and make consistent choices.

    Completeness: The consumer’s preferences are complete, meaning they have a preference between any two goods.

    Transitivity: The consumer’s preferences are transitive, meaning if the consumer prefers A to B, and B to C, then they also prefer A to C.

    CRITICISMS

    Income Effects: The indifference curve analysis does not account for the effects of income and wealth on consumption choices, which can be an important factor in real life. Consumers’ consumption patterns may be influenced by their income and wealth, and changes in their income can affect their demand for different goods.

    Social Norms and Cultural Values: The indifference curve analysis also does not account for the effects of social norms and cultural values on consumption choices, which can also be important in real life. Consumers may be influenced by their social and cultural environment when making consumption choices, which can affect the shape and position of the indifference curve.

    Inconsistent Preferences: One of the main criticisms of the indifference curve analysis is that it assumes consumers have consistent preferences, which may not always be the case in real life. Consumers’ preferences may change over time, or they may not have a clear preference between two goods.

    Utility Measurement: The indifference curve analysis also assumes that consumers can easily and accurately measure their satisfaction or utility from different goods, which may not be possible in reality. Measuring utility is subjective and difficult to quantify, which can limit the usefulness of the indifference curve analysis.

    2.BUDGET CONSTRAINT:

    Budget constraint is an economic term referring to the combined amount of items you can afford within the amount of income available to you. For example, if you are a sales professional with a 1000naria budget for promotional items, this sets the upper limit on items you can purchase. The cost of each item and the minimum quantity you need would determine how many you can buy within your budget.
    The same principle of budget constraint can also be applied to time. If you are a manager, your employees only have a certain number of hours in a workday, which means you need to determine how much of their time they should spend on the various things they need to accomplish. The calculation may vary from week to week as your business priorities change and your employees’ available time adjusts since some weeks include holidays or employees might take time off.

    UTILITY MAXIMIZATION:

    Utility maximisation refers to the concept that individuals and firms seek to get the highest satisfaction from their economic decisions.
    For example, when deciding how to spend a fixed some, individuals will purchase the combination of goods/services that give the most satisfaction.
    Utility maximisation can also refer to other decisions – for example, the optimal number of hours for labour to supply their labour. Working more increases income, but reduces leisure time

    3.COBWEB’S THEORY

    Cobweb theory is the idea that price fluctuation can lead to fluctuations in supply which cause a cycle of raising and falling prices. It is an economic model used to explain how small economic shocks can become amplified by the behaviour of producers.

    Assumptions of Cobweb theory

    1.In an agricultural market, farmers have to decide how much to produce a year in advance – before they know what the market price will be. (supply is price inelastic in short-term)

    2.A key determinant of supply will be the price from the previous year.

    3.A low price will mean some farmers go out of business. Also, a low price will discourage farmers from growing that crop in the next year.

    4.Demand for agricultural goods is usually price inelastic (a fall in price only causes a smaller % increase in demand)

    Limitations of Cobweb theory

    1.Rational expectations. The model assumes farmers base next years supply purely on the previous price and assume that next year’s price will be the same as last year (adaptive expectations). However, that rarely applies in the real world. Farmers are more likely to see it as a ‘good’ year or ‘bad year and learn from price volatility.

    2.Price divergence is unrealistic and not empirically seen. The idea that farmers only base supply on last year’s price means, in theory, prices could increasingly diverge, but farmers would learn from this and pre-empt changes in price.

  8. Avatar Anih Fortune Kenechuwku says:

    Name: Anih Fortune Kenechukwu
    Reg Number: 2020/248273
    Department: Business Education
    Email address: fortunekenny111@gmail.com

    1. INDIFFERENCE CURVE
    An indifference curve shows a combination of two goods in various quantities that provides equal satisfaction (utility) to an individual.

    ASSUMPTIONS
    Monotonicity: The consumer’s preferences are monotonic, meaning they prefer more of a good to less of it.

    Convexity: The consumer’s preferences are convex, meaning they prefer a balanced combination of goods rather than extreme or lopsided combinations.

    Rationality: The consumer is rational, meaning they can rank their preferences and make consistent choices.

    Completeness: The consumer’s preferences are complete, meaning they have a preference between any two goods.

    Transitivity: The consumer’s preferences are transitive, meaning if the consumer prefers A to B, and B to C, then they also prefer A to C.

    CRITICISMS
    Income Effects: The indifference curve analysis does not account for the effects of income and wealth on consumption choices, which can be an important factor in real life. Consumers’ consumption patterns may be influenced by their income and wealth, and changes in their income can affect their demand for different goods.

    Social Norms and Cultural Values: The indifference curve analysis also does not account for the effects of social norms and cultural values on consumption choices, which can also be important in real life. Consumers may be influenced by their social and cultural environment when making consumption choices, which can affect the shape and position of the indifference curve.

    Inconsistent Preferences: One of the main criticisms of the indifference curve analysis is that it assumes consumers have consistent preferences, which may not always be the case in real life. Consumers’ preferences may change over time, or they may not have a clear preference between two goods.

    Utility Measurement: The indifference curve analysis also assumes that consumers can easily and accurately measure their satisfaction or utility from different goods, which may not be possible in reality. Measuring utility is subjective and difficult to quantify, which can limit the usefulness of the indifference curve analysis.

    2.BUDGET CONSTRAINT:
    Budget constraint is an economic term referring to the combined amount of items you can afford within the amount of income available to you. For example, if you are a sales professional with a 1000naria budget for promotional items, this sets the upper limit on items you can purchase. The cost of each item and the minimum quantity you need would determine how many you can buy within your budget.
    The same principle of budget constraint can also be applied to time. If you are a manager, your employees only have a certain number of hours in a workday, which means you need to determine how much of their time they should spend on the various things they need to accomplish. The calculation may vary from week to week as your business priorities change and your employees’ available time adjusts since some weeks include holidays or employees might take time off.

    UTILITY MAXIMIZATION:
    Utility maximisation refers to the concept that individuals and firms seek to get the highest satisfaction from their economic decisions.
    For example, when deciding how to spend a fixed some, individuals will purchase the combination of goods/services that give the most satisfaction.
    Utility maximisation can also refer to other decisions – for example, the optimal number of hours for labour to supply their labour. Working more increases income, but reduces leisure time

    3.COBWEB’S THEORY
    Cobweb theory is the idea that price fluctuation can lead to fluctuations in supply which cause a cycle of raising and falling prices. It is an economic model used to explain how small economic shocks can become amplified by the behaviour of producers.

    Assumptions of Cobweb theory
    1.In an agricultural market, farmers have to decide how much to produce a year in advance – before they know what the market price will be. (supply is price inelastic in short-term)

    2.A key determinant of supply will be the price from the previous year.

    3.A low price will mean some farmers go out of business. Also, a low price will discourage farmers from growing that crop in the next year.
    4.Demand for agricultural goods is usually price inelastic (a fall in price only causes a smaller % increase in demand)

    Limitations of Cobweb theory
    1.Rational expectations. The model assumes farmers base next years supply purely on the previous price and assume that next year’s price will be the same as last year (adaptive expectations). However, that rarely applies in the real world. Farmers are more likely to see it as a ‘good’ year or ‘bad year and learn from price volatility.

    2.Price divergence is unrealistic and not empirically seen. The idea that farmers only base supply on last year’s price means, in theory, prices could increasingly diverge, but farmers would learn from this and pre-empt changes in price.

  9. Avatar Nwabuisi kaosisochukwu Celestine says:

    1. INDIFFERENCE CURVE
An indifference curve shows a combination of two goods in various quantities that provides equal satisfaction (utility) to an individual.
    ITS ASSUMPTIONS
. The consumer is rational to maximize the satisfaction and makes a transitive or consistent choice.
. Price of goods is constant
. Consumers spend a small part of their income.
. The marginal rate of substitution diminishes
. There is the possibility of substituting one good for another but there is no perfect substitution.
    ITS CRITICISMS
. Indifference curve is said to make unrealistic assumptions about human behaviour.
. It is unable to explain risky choices undertaken by the consumer.
. It has been criticized for being an ‘old wine in a new bottle’ for it has merely rehashed the concept of diminishing marginal utility of a product in new terms.
    2)*Budget constraint*: represents all the combinations of goods and services that a consumer may purchase given current prices with his ot her given income.The budget constraints of a consumer can be written as
P1x1+P2X2≤m
Here P1X1 is the amount of money the consumer is spending on good 1 and P2X2 is the amount of money the consumer is spending on good 2.The budget constraint requires that the amount of money spent on the two goods be no more than the total amount the consumer has to spend.
Utility maximization is a point where the consumer derives maximum satisfaction when his or her marginal utility equals the price of the commodity.
Thus Mux=Pricex =D
Utility maximization is the attainment of the greatest possible total utility.The consumer are constrained by by the prices of goods and income.
    3. *
Cobweb theory* is the idea that price fluctuations can lead to fluctuations in supply which cause a cycle of rising and falling prices.
ASSUMPTIONS OF COBWEB THEORY.
*In an agricultural market, farmers have to decide how much to produce a year in advance – before they know what the market price will be. (supply is price inelastic in short-term).
*A key determinant of supply will be the price from the previous year.
*A low price will mean some farmers go out of business. Also, a low price will discourage farmers from growing that crop in the next year.
*Demand for agricultural goods is usually price inelastic (a fall in price only causes a smaller % increase in demand.
In theory, the market could fluctuate between high price and low price as suppliers respond to past prices.
*Cobweb theory and price divergence.
Price will diverge from the equilibrium when the supply curve is more elastic than the demand curve, (at the equilibrium point). This is when cobweb theory is in “increasing volatility”,
If the slope of the supply curve is less than the demand curve, then the price changes could become magnified and the market more unstable.
*Cobweb theory and price convergence when the cobweb theory is in “decreasing volatility”
At the equilibrium point, if the demand curve is more elastic than the supply curve, we get the price volatility falling, and the price will converge on the equilibrium
LIMITATIONS OF COBWEB THEORY
1.Rational expectations. The model assumes farmers base next years supply purely on the previous price and assume that next year’s price will be the same as last year (adaptive expectations). However, that rarely applies in the real world. Farmers are more likely to see it as a ‘good’ year or ‘bad year and learn from price volatility.
2.Price divergence is unrealistic and not empirically seen. The idea that farmers only base supply on last year’s price means, in theory, prices could increasingly diverge, but farmers would learn from this and pre-empt changes in price.
    3.It may not be easy or desirable to switch supply. A potato grower may concentrate on potatoes because that is his speciality. It is not easy to give up potatoes and take to aubergines.
    4.Other factors affecting price. There are many other factors affecting price than a farmers decision to supply. In global markets, supply fluctuations will be minimized by the role of importing from abroad. Also, demand may vary. Also, supply can vary due to weather factors.
    5.Buffer stock schemes. Governments or producers could band together to limit price volatility by buying surplus
    Possible examples of Cobweb theory
*Housing
Housing is very inelastic and subject to booms and bust. In response to the housing boom in Ireland, supply increased. But, the price collapsed, leading to a big fall in the building of new housing. Tamari, (1981) argued there was evidence of cobweb nature of the Israeli housing market.

  10. Name: Nwosu Uchenna .E.
    Reg. No: 2020/247134
    Dept. : Business Education

    Question 1
    Briefly discuss the indifference curve(including its assumptions and criticisms)
    An indifference curve is a graphical representation of a combined products that gives similar kind of satisfaction to a consumer thereby making them indifferent.Every point on the indifference curve shows that an individual or a consumer is indifferent between the two products as it gives him the same kind of utility. The indifference curve assumptions includes;

    * The consumer is rational to maximize the satisfaction and makes a transitive or consistent choice.

    * The consumer is expected to buy any of the two commodities in a combination.

    * Consumers can rank a combination of commodities based on their satisfaction levels. Usually, the combination with the higher satisfaction level is preferred.

    * The consumer behavior remains constant in the analysis.

    * The utility is expressed in terms of ordinal numbers. 

    * Assumes marginal rate of substitution to diminish.
    Some indifference curve criticisms includes;

    * Unrealistic assumptions

    * There’s no novelty

    * Indifference curve is non-Transitive

    * It fails to explain risky choice

    * Does not provide behavioristic explanation of consumer behavior

    * It is based on weak ordering

    * Combination are not based on any principle.

    Question 2
    short note on Budget constraint and utility maximization 

    In economics, a budget constraint represents all the combinations of goods and services that a consumer may purchase given current prices within his or her given income. Consumer theory uses the concepts of a budget constraint and a preference map as tools to examine the parameters of consumer choices. While
    Utility maximization is a strategic scheme whereby individuals and companies seek to achieve the highest level of satisfaction from their economic decisions. For example, when a company’s resources are limited, management will implement a plan of purchasing goods and services that provides the maximum benefit.
    The difference between both is that The budget constraint describes all the bundles the consumer could possibly choose while the utility function describes the consumer’s preferences and relative level of satisfaction from the consumption of bundles.

    Question 3
    Extensively discuss the Cobweb theory.

    The cobweb model or cobweb theory is an economic model that explains why prices might be subject to periodic fluctuations in certain types of markets. It describes cyclical supply and demand in a market where the amount produced must be chosen before prices are observed. The Cobweb Theorem attempts to explain the regularly recurring cycles in the output and prices of farm products. Frankly speaking, it is not a business cycle theory for it relates only to the farming sector of the economy. In 1930 Cobweb Theory was advanced by the three economists in Italy. It asserts that supply adjusts itself to changing conditions of demand which arc manifested through price changes not instantaneously but after certain period. This time, taken by the supply to adjust itself to changes in demand is known as lag.
    Thus the quantity supplied during any given time period is the function of the price prevailed in earlier time period to while the demand depends upon the price that prevails in period t itself. The core of this theory is that the response of supply to price ranges is not instantaneous.
    This theorem is based on three(3) assumptions which includes;
    . Perfect competition in which each producer assumes that present prices will continue and that his own production plans will not affect the market.
    . Price is completely a function of the preceding period’s supply.
    . The commodity concerned is perishable. These assumptions show that the theory is particularly applicable to agricultural products.

  11. Avatar odeh samuel oloche says:

    Name: Odeh Samuel Oloche
    REG NO: 2021/247654
    Department: Business education

    1. Briefly discuss the indifference curve, including its assumptions and criticisms
    An indifference curve is a graphical representation of different combinations or consumption bundles of two goods or commodities, providing equal levels of satisfaction and utility for the consumer. In other words, a consumer is considered indifferent between any two bundles indicated by a point on the curve, provided these combinations give the same utility.
    The indifference curve in economics examines demand patterns for commodity combinations, budget constraints and helps understand customer preferences. It is a downward sloping convex line connecting the quantity of one good consumed with the amount of another good consumed.
    ASSUMPTIONS OF INDIFFERENCE CURVE
    The following are the assumptions of indifference curve
    1. The consumer acts rationally so as to maximize satisfaction.
    2. There are two goods X and Y.
    3. The prices of the two goods are given.
    4. The consumer possess complete information about prices of goods in the market.
    5. The consumer’s taste, habit and income remains the same throughout the analysis.
    CRITICISMS OF THE INDIFFERENCE CURVE
    1. The consumer is not rational as the indifference curve assumes the consumer is very calculative and make rational decision. Leaving the fact that consumers are sometime indifference to available option as long as it satisfy their wants.
    2. The indifference curve technique is based on the unrealistic assumptions of perfect competition whereas in reality the consumer is faced monopolistic competition.
    3. Indifference curve are hypothetical because they are not subject to direct measurement but rather ranking of utility
    4. Consumers don’t always possess full knowledge of the prices of goods in the market.
    5. It fails to consider other factors concerning consumer behaviour as their taste and habit can’t remain the same.
    2. Write short note on Budget constraint and utility maximization
    BUDGET CONSTRAINT
    A budget constraint is an economic term referring to the combined amount of items you can afford within the amount of income available to you. For example, if you are a sales person with a ₦200 budget for promotional items, this sets the upper limit on items you can purchase. The cost of each item and the minimum quantity you need would determine how many you can buy within your budget.
    When calculating budget constraints, you normally have a number of things under consideration for which you are trying to budget. However, it’s easier to understand how budget constraints work if you just consider two sets of items. You could spend your entire budget on item one, or you could spend it all on item two. Alternatively, you could buy a combination of some of item one and some of item two. The proportions of each item you purchase would be constrained by your budget.If a consumer purchases two goods, the budget limitation can be displayed with the help of a budget line on a graph. A budget line reveals all the possibilities in combinations of two goods a consumer can purchase with limited income. It allows the consumer to buy within a given budget, i.e., within their current income.
    UTILITY MAXIMIZATION
    Utility maximization refers to the concept that individuals and firms seek to get the highest satisfaction from their economic decisions. For example, when deciding how to spend a fixed some, individuals will purchase the combination of goods/services that give the most satisfaction. Utility maximization can also refer to other decisions – for example, the optimal number of hours for labour to supply their labour. Working more increases income, but reduces leisure time.
    A consumer will consume a good up to the point where the marginal utility is greater than or equal to the price. If you feel a sandwich gives you more utility than the cost of buying then you will continue to buy.
    Another way of explaining utility maximization is through the use of indifference curves and budget lines
    a. Indifference curves show different combinations of goods which gave the same utility
    b. A budge line shows disposable income and the maximum potential goods that can be bought
    c. Indifference curves further to the right are more desirable as they have bigger combinations of goods.
    d. Utility will be maximized at the furthest indifference curve still affordable.
    3. Extensively discuss the Cobweb theory.
    Cobweb theory is the idea that price fluctuations can lead to fluctuations in supply which cause a cycle of rising and falling prices. In a simple cobweb model, we assume there is an agricultural market where supply can vary due to variable factors, such as the weather.
    COBWEB THEORY AND PRICE DIVERGENCE
    Price will diverge from the equilibrium when the supply curve is more elastic than the demand curve, (at the equilibrium point). If the slope of the supply curve is less than the demand curve, then the price changes could become magnified and the market more unstable.
    COBWEB THEORY AND PRICE CONVERGENCE
    At the equilibrium point, if the demand curve is more elastic than the supply curve, we get the price volatility falling, and the price will converge on the equilibrium.
    ASSUMPTIONS OF COBWEB THEORY
    1. In an agricultural market, farmers have to decide how much to produce a year in advance before they know what the market price will be. (supply is price inelastic in short-term). If there is a very good harvest, then supply will be greater than expected and this will cause a fall in price.
    2. A low price will mean some farmers go out of business. Also, a low price will discourage farmers from growing that crop in the next year. If supply is reduced, then this will cause the price to rise.
    3. Demand for agricultural goods is usually price inelastic (a fall in price only causes a smaller % increase in demand).
    LIMITATIONS OF COBWEB THEORY
    1. Rational expectations.The model assumes farmers base next year supply purely on the previous price and assume that next year’s price will be the same as last year (adaptive expectations). However, that rarely applies in the real world.
    2. Price divergence is unrealistic and not empirically seen. The idea that farmers only base supply on last year’s price means, in theory, prices could increasingly diverge, but farmers would learn from this and pre-empt changes in price.
    3. It may not be easy or desirable to switch supply. A vegetable grower may concentrate on vegetable because that is his specialty.

  12. Avatar Ogbodo Dikanna Francis 2020/245751 combined social science Eco/Geo says:

    The indifference curve is a graphical representation of a consumer’s preferences and choices. It is used in economics to explain how consumers make decisions between two or more goods or services, based on the assumption that they are rational and seek to maximize their satisfaction or utility.

    Assumptions of Indifference Curve Analysis:

    Rationality: The consumer is rational, meaning they can rank their preferences and make consistent choices.
    Completeness: The consumer’s preferences are complete, meaning they have a preference between any two goods.
    Transitivity: The consumer’s preferences are transitive, meaning if the consumer prefers A to B, and B to C, then they also prefer A to C.
    Monotonicity: The consumer’s preferences are monotonic, meaning they prefer more of a good to less of it.
    Convexity: The consumer’s preferences are convex, meaning they prefer a balanced combination of goods rather than extreme or lopsided combinations.
    To create an indifference curve, we plot different combinations of two goods on a graph, with one good on the x-axis and the other on the y-axis. Each point on the curve represents a different combination of goods that gives the consumer the same level of satisfaction or utility. The shape of the indifference curve depends on the consumer’s preferences, with a typical curve having a negative slope, showing that as the quantity of one good increases, the quantity of the other good must decrease to maintain the same level of satisfaction.

    The indifference curve is a useful tool in understanding consumer behavior and market demand. It helps us to visualize how consumers make choices between two goods and how changes in the price and income affect their consumption patterns. It is also the basis for other important concepts in economics such as the budget constraint, marginal rate of substitution, and consumer surplus.

    Criticism of Indifference Curve Analysis:

    Inconsistent Preferences: One of the main criticisms of the indifference curve analysis is that it assumes consumers have consistent preferences, which may not always be the case in real life. Consumers’ preferences may change over time, or they may not have a clear preference between two goods.
    Utility Measurement: The indifference curve analysis also assumes that consumers can easily and accurately measure their satisfaction or utility from different goods, which may not be possible in reality. Measuring utility is subjective and difficult to quantify, which can limit the usefulness of the indifference curve analysis.
    Income Effects: The indifference curve analysis does not account for the effects of income and wealth on consumption choices, which can be an important factor in real life. Consumers’ consumption patterns may be influenced by their income and wealth, and changes in their income can affect their demand for different goods.
    Social Norms and Cultural Values: The indifference curve analysis also does not account for the effects of social norms and cultural values on consumption choices, which can also be important in real life. Consumers may be influenced by their social and cultural environment when making consumption choices, which can affect the shape and position of the indifference curve.
    In conclusion, while the indifference curve is a useful tool for understanding consumer behavior and market demand, it has its limitations and criticisms. Nonetheless, it is a valuable starting point for economists when examining consumer preferences, and the concepts derived from it have been used to explain many important economic phenomena.
    Budget constraint and utility maximization are two fundamental concepts in microeconomics that help us understand how consumers make choices about how to allocate their limited income among different goods and services in order to maximize their satisfaction or utility.

    The budget constraint is the relationship between the amount of money a consumer has to spend and the prices of the goods and services that they wish to purchase. It is graphically represented as a budget line that shows all the possible combinations of two goods that a consumer can purchase with their given income and the prices of the two goods. The slope of the budget line is determined by the relative prices of the two goods and represents the opportunity cost of consuming one good in terms of the other. The budget constraint creates a tradeoff between the two goods, as the consumer must decide how to allocate their limited income among them.

    Utility maximization is the process by which a consumer decides how to allocate their income among different goods in order to maximize their satisfaction or utility. The consumer’s utility function describes their preferences for different combinations of goods, and the shape of the indifference curves reflects the marginal rate of substitution (MRS) between the two goods. The MRS represents the amount of one good that a consumer is willing to give up in order to obtain one more unit of the other good, while remaining indifferent in terms of their overall level of satisfaction or utility.

    The optimal consumption bundle is the combination of two goods that maximizes the consumer’s utility, subject to their budget constraint. It occurs at the point where the budget line is tangent to the highest possible indifference curve, known as the consumer’s optimum. This point represents the combination of goods that the consumer will purchase in order to obtain the highest possible level of satisfaction or utility, given their budget constraint.

    To illustrate these concepts, consider the example of a consumer who has $100 to spend on two goods, X and Y, and the prices of X and Y are $5 and $10, respectively. The consumer’s budget line would be represented as the line 10X + 5Y = 100. The slope of the budget line is -2, which shows the tradeoff between the two goods – for every one unit of X, the consumer must give up two units of Y.

    The consumer’s optimal consumption bundle would be the point at which their budget line is tangent to the highest possible indifference curve. Suppose the consumer’s preferences are such that they are indifferent between having 10 units of X and 5 units of Y or having 5 units of X and 10 units of Y. This would be represented by an indifference curve that is a straight line with a slope of -1. The optimal consumption bundle would be the point where the budget line intersects the indifference curve, which would be (6, 8) – the consumer would purchase 6 units of X and 8 units of Y.

    In summary, the budget constraint and utility maximization are important concepts in microeconomics that help us understand how consumers make choices about how to allocate their limited income among different goods and services. The budget constraint creates a tradeoff between goods, while utility maximization helps us identify the consumer’s optimal consumption bundle that maximizes their satisfaction or utility, subject to their budget constraint.
    The Cobweb theory is a dynamic model that explains how changes in supply and demand of a commodity lead to price fluctuations in the short run. The theory is often used to explain price cycles in agricultural markets, where it is difficult for producers to adjust supply quickly to changes in demand.

    The basic premise of the Cobweb model is that supply and demand are interdependent, and that changes in one affect the other. The model assumes that producers make decisions based on current market conditions, while consumers make decisions based on expected future market conditions. In other words, producers respond to current prices by adjusting their supply in the short run, while consumers respond to expected future prices by adjusting their demand.

    The model starts with an initial equilibrium where supply equals demand, and the market clears at a certain price level. Suppose that there is a change in demand for the commodity, such as an increase in population or income, that causes the demand curve to shift. The new equilibrium price is determined by the intersection of the new demand curve and the existing supply curve.

    However, producers do not immediately adjust their supply in response to the change in demand. They take time to respond due to various factors such as production lead time and the need to acquire resources. As a result, there is an initial shortage or surplus of the commodity, depending on the direction of the demand shock.

    Suppose there is an increase in demand for the commodity. The initial shortage leads to an increase in price, which provides an incentive for producers to increase their supply in the next period. However, the producers are not aware of the future demand conditions and base their decisions on the current market conditions. This means that they may overreact to the current high prices and increase their supply too much in the next period. The excess supply leads to a surplus, which lowers the price in the next period, and creates an incentive for producers to decrease their supply in the following period.

    This process of adjustment continues, with producers and consumers adjusting their decisions based on past prices, until a new equilibrium is reached. The resulting price cycle creates a cobweb-like pattern, hence the name “Cobweb” theory.

    The Cobweb model has been criticized for its unrealistic assumptions, such as the assumption of perfect competition and the assumption that producers and consumers base their decisions solely on past prices. However, the model has been useful in explaining price cycles in certain markets, such as the agricultural markets, and has led to further research on the dynamics of supply and demand interactions.

    In summary, the Cobweb theory is a dynamic model that explains how changes in supply and demand of a commodity lead to price fluctuations in the short run. The theory assumes that producers and consumers base their decisions on past prices, leading to a cyclical pattern of price fluctuations. While the model has its limitations, it has been useful in explaining certain market phenomena and has contributed to further research in the area of supply and demand dynamics.

    • Question 1
      Briefly discuss the indifference curve(including its assumptions and criticisms)
      An indifference curve is a graphical representation of a combined products that gives similar kind of satisfaction to a consumer thereby making them indifferent.Every point on the indifference curve shows that an individual or a consumer is indifferent between the two products as it gives him the same kind of utility. The indifference curve assumptions includes;
      * The consumer is rational to maximize the satisfaction and makes a transitive or consistent choice.
      * The consumer is expected to buy any of the two commodities in a combination.
      * Consumers can rank a combination of commodities based on their satisfaction levels. Usually, the combination with the higher satisfaction level is preferred.
      * The consumer behavior remains constant in the analysis.
      * The utility is expressed in terms of ordinal numbers. 
      * Assumes marginal rate of substitution to diminish.
      Some indifference curve criticisms includes;

      * Unrealistic assumptions
      * There’s no novelty
      * Indifference curve is non-Transitive
      * It fails to explain risky choice
      * Does not provide behavioristic explanation of consumer behavior
      * It is based on weak ordering
      * Combination are not based on any principle.
      Question 2
      short note on Budget constraint and utility maximization 

      In economics, a budget constraint represents all the combinations of goods and services that a consumer may purchase given current prices within his or her given income. Consumer theory uses the concepts of a budget constraint and a preference map as tools to examine the parameters of consumer choices. While
      Utility maximization is a strategic scheme whereby individuals and companies seek to achieve the highest level of satisfaction from their economic decisions. For example, when a company’s resources are limited, management will implement a plan of purchasing goods and services that provides the maximum benefit.
      The difference between both is that The budget constraint describes all the bundles the consumer could possibly choose while the utility function describes the consumer’s preferences and relative level of satisfaction from the consumption of bundles.

      Question 3
      Extensively discuss the Cobweb theory.

      The cobweb model or cobweb theory is an economic model that explains why prices might be subject to periodic fluctuations in certain types of markets. It describes cyclical supply and demand in a market where the amount produced must be chosen before prices are observed. The Cobweb Theorem attempts to explain the regularly recurring cycles in the output and prices of farm products. Frankly speaking, it is not a business cycle theory for it relates only to the farming sector of the economy. In 1930 Cobweb Theory was advanced by the three economists in Italy. It asserts that supply adjusts itself to changing conditions of demand which arc manifested through price changes not instantaneously but after certain period. This time, taken by the supply to adjust itself to changes in demand is known as lag.
      Thus the quantity supplied during any given time period is the function of the price prevailed in earlier time period to while the demand depends upon the price that prevails in period t itself. The core of this theory is that the response of supply to price ranges is not instantaneous.
      This theorem is based on three(3) assumptions which includes;
      1. Perfect competition in which each producer assumes that present prices will continue and that his own production plans will not affect the market.
      2. Price is completely a function of the preceding period’s supply.
      3. The commodity concerned is perishable. These assumptions show that the theory is particularly applicable to agricultural products.

  13. Avatar Obelu Victoria Obianuju says:

    (1).
    An indifference curve is a graphical representation of various combinations or consumption bundles of two commodities. It provides equivalent satisfaction and utility levels for the consumer. It makes the consumer indifferent to any of the combinations of goods shown as points on the curve.

    (2) Utility maximization is the concept that individuals and organizations seek to attain the highest level of satisfaction from their economic decisions.

    (3) The cobweb model or cobweb theory is an economic model that explains why prices might be subject to periodic fluctuations in certain types of markets. It describes cyclical supply and demand in a market where the amount produced must be chosen before prices are observed.

  14. Avatar OKEKE ONYINYECHI DANIELLA says:

    OKEKE ONYINYECHI DANIELLA
    2020/249367
    Combined social sciences
    Economics and political Science

    1:The indifference curve is a graphical representation of the consumer’s preferences among different combinations of goods. It is a curve that shows all the combinations of two goods that give the same level of satisfaction or utility to the consumer. The indifference curve is based on the following assumptions:
    Rationality: The consumer is rational and aims to maximize their utility by consuming the goods.
    Completeness: The consumer can compare and rank all the combinations of goods.
    Transitivity: If a consumer prefers combination A to B and B to C, then they must prefer A to C.
    Diminishing marginal rate of substitution: As the consumer consumes more of one good, the marginal utility of that good decreases, and the consumer must consume more of the other good to maintain the same level of satisfaction.
    The indifference curve has been criticized for its assumptions of rationality and completeness, which may not always hold in real-world situations. The curve is also limited to only two goods, which can limit its applicability.

    2:Budget constraint refers to the limit on the amount a consumer can spend on goods and services given their income and the prices of the goods. Utility maximization is the process of choosing the combination of goods that provides the highest level of satisfaction or utility given the budget constraint. The consumer must allocate their income among the different goods to maximize their utility.
    The consumer can determine the optimal combination of goods by comparing the marginal utility of each good to its price. The marginal utility measures the additional utility gained from consuming an extra unit of the good, while the price represents the opportunity cost of consuming that good. The consumer maximizes their utility by consuming the goods that provide the most marginal utility per dollar.

    3:The Cobweb theory is an economic theory that explains the cyclical behavior of prices and quantities in certain markets, such as agricultural markets. The theory is based on the following assumptions:
    There is a time lag between the decision to produce a good and its actual production.
    The supply of the good is fixed in the short run.
    The demand for the good is relatively inelastic.
    The theory predicts that if there is an initial increase in the price of the good, producers will respond by increasing their production in the following period. However, because of the time lag between the decision to produce and actual production, the supply will be higher than the demand, leading to a decrease in the price in the next period. This, in turn, will lead to a decrease in production, resulting in a shortage in the following period, and so on. The cycle will continue until the market reaches an equilibrium.

    The Cobweb theory has been criticized for its assumptions, which may not always hold in real-world situations. The theory also does not account for the possibility of changes in demand or technological innovations that can affect the supply of the good.

  15. Avatar Nnaji Miracle Ogechukwu says:

    Nnaji Miracle Ogechukwu
    2020/242602
    Economics Department

    INDIFFERENCE CURVE
    An indifference curve is a chart showing various combinations of two goods or commodities that leave the consumer equally well off or equally satisfied—hence indifferent—when it comes to having any combination between the two items that is shown along the curve. Some assumptions of indifference curve are:
    1. Consumer is rational;
    2. Price of goods is constant;
    3. Higher IC curve gives the highest satisfaction and lowest curve gives lowest satisfaction;
    4. Two IC curves never intersect each other;
    5. Consumers spend a small part of their income.

    BUDGET CONSTRAINT AND UTILITY MAXIMIZATION
    Budget constraint is an economic term referring to the combined amount of items you can afford within the amount of income available to you. For example, if you are a sales professional with a 1000naria budget for promotional items, this sets the upper limit on items you can purchase. The cost of each item and the minimum quantity you need would determine how many you can buy within your budget.
    The same principle of budget constraint can also be applied to time. If you are a manager, your employees only have a certain number of hours in a workday, which means you need to determine how much of their time they should spend on the various things they need to accomplish. The calculation may vary from week to week as your business priorities change and your employees’ available time adjusts since some weeks include holidays or employees might take time off.

    Utility maximisation refers to the concept that individuals and firms seek to get the highest satisfaction from their economic decisions.
    For example, when deciding how to spend a fixed some, individuals will purchase the combination of goods/services that give the most satisfaction.
    Utility maximisation can also refer to other decisions – for example, the optimal number of hours for labour to supply their labour. Working more increases income, but reduces leisure time.

    THE COBWEB THEORY
    Cobweb Theory is an economic model that explains why prices might be subject to periodic fluctuations in certain types of markets. It describes cyclical supply and demand in a market where the amount produced must be chosen before prices are observed. Producers’ expectations about prices are assumed to be based on observations of previous prices.
    Example; say that due to unexpected bad weather, farmers go into the market with a small supply of corn. This will drive corn prices up, since there is a higher demand for it. Since these farmers expect the high prices to continue for the next year, they raise production of corn. This results in lower prices due to lower demand. If the same farmers expect low prices to continue, they decrease production, resulting in high prices again; the cycle then repeats over and over.
    Nicholas Kaldor analyzed the model in 1934, coining the term “cobweb theorem”
    The cobweb model can have two types of outcomes:
    If the supply curve is steeper than the demand curve, then the fluctuations decrease in magnitude with each cycle, so a plot of the prices and quantities over time would look like an inward spiral. This is called the stable or convergent case.
    If the slope of the supply curve is less than the absolute value of the slope of the demand curve, then the fluctuations increase in magnitude with each cycle, so that prices and quantities spiral outwards. This is called the unstable or divergent case.
    Like every other theory of business cycle, the cobweb theorem suffers from many limitations. The Cobweb theorem is applicable only when the following conditions are satisfied:

    1. Perfect competition in which each producer assumes that present prices will continue and that his own production plans will not affect the market,

    2. Price is completely a function of the preceding period’s supply

    3. The commodity concerned is perishable. These assumptions show that the theory is particularly applicable to agricultural products.

    However there is one virtue. Equilibrium Economics says that if an equilibrium is disturbed, it tends to come back towards the normal equilibrium. That is the stability condition. The cobweb theorem explains the fluctuations, disturbing equilibrium and stability. Even under static conditions, price and production of any commodity may diverge away from the equilibrium level or may converge towards it without never reaching it.

  16. Avatar Kiwamu Favour Chizaram says:

    KIWAMU FAVOUR CHIZARAM
    2020/242601
    Economics Major
    An indifference curve is a graphical representation of a combined products that gives similar kind of satisfaction to a consumer thereby making them indifferent. Each point on an indifference curve indicates that a consumer is indifferent between the two and all points give him the same utility.An indifference curve can also be defined as a chart showing various combinations of two goods or commodities that leave the consumer equally well off or equally satisfied—hence indifferent—when it comes to having any combination between the two items that is shown along the curve.
    ASSUMPTIONS OF AN INDIFFERENCE CURVE.
    The consumer is rational to maximize the satisfaction and makes a transitive or consistent choice.
    The consumer is expected to buy any of the two commodities in a combination.
    Consumers can rank a combination of commodities based on their satisfaction levels. Usually, the combination with the higher satisfaction level is preferred.
    The consumer behavior remains constant in the analysis.
    The utility is expressed in terms of ordinal numbers.
    Assumes marginal rate of substitution to diminish.
    CRITICISMS OF THE INDIFFERENCE CURVE
    Indifference curves, like many aspects of contemporary economics, have been criticized for oversimplifying or making unrealistic assumptions about human behavior.For example, consumer preferences might change between two different points in time, rendering specific indifference curves practically useless. Other critics note that it is theoretically possible to have concave indifference curves or even circular curves that are either convex or concave to the origin at various points.
    BUDGET CONSTRAINT
    The budget constraint is the boundary of the opportunity set—all possible combinations of consumption that someone can afford given the prices of goods and the individual’s income. It can also be defined as the total amount of items you can afford within a particular budget
    UTILITY MAXIMIZATION
    Utility maximization is the concept that individuals and organizations seek to attain the highest level of satisfaction from their economic decisions. Utility function measures the intensity to which an individual’s fulfillment is met.

    COBWEB THEORY
    Cobweb theory is the idea that price fluctuations can lead to fluctuations in supply which cause a cycle of rising and falling prices.In a simple cobweb model, we assume there is an agricultural market where supply can vary due to variable factors, such as the weather
    ASSUMPTIONS OF COBWEB THEORY
    In an agricultural market, farmers have to decide how much to produce a year in advance – before they know what the market price will be. (supply is price inelastic in short-term)
    A key determinant of supply will be the price from the previous year.
    A low price will mean some farmers go out of business. Also, a low price will discourage farmers from growing that crop in the next year.
    Demand for agricultural goods is usually price inelastic (a fall in price only causes a smaller % increase in demand)
    In this theory, the market could fluctuate between high price and low price as suppliers respond to past prices.
    LIMITATIONS OF COBWEB THEORY
    Rational expectations. The model assumes farmers base next years supply purely on the previous price and assume that next year’s price will be the same as last year (adaptive expectations). However, that rarely applies in the real world. Farmers are more likely to see it as a ‘good’ year or ‘bad year and learn from price volatility.

    Price divergence is unrealistic and not empirically seen. The idea that farmers only base supply on last year’s price means, in theory, prices could increasingly diverge, but farmers would learn from this and pre-empt changes in price.

    It may not be easy or desirable to switch supply. A potato grower may concentrate on potatoes because that is his speciality. It is not easy to give up potatoes and take to aubergines.

    Other factors affecting price. There are many other factors affecting price than a farmers decision to supply. In global markets, supply fluctuations will be minimized by the role of importing from abroad. Also, demand may vary. Also, supply can vary due to weather factors.

    Buffer stock schemes. Governments or producers could band together to limit price volatility by buying surplus

  17. Avatar TOCHUKWU ADAORAH DESTINY says:

    NAME: TOCHUKWU ADAORAH DESTINY
    REG. NUMBER: 2021/249145
    DEPARTMENT: ECONOMICS

    1. The indifference curve is a graphical representation of a consumer’s preferences for a combination of goods that provide the same level of satisfaction or utility to the consumer. The curve is typically downward sloping, showing that as a consumer receives more of one good, they are willing to give up some of the other good to maintain the same level of satisfaction.

    The assumptions of the indifference curve are that the consumer has a consistent set of preferences, that they can compare and rank different options, and that they always try to maximize their utility or satisfaction. Additionally, the curve assumes that the consumer has a fixed income and that the prices of the goods do not change.

    One criticism of the indifference curve theory is that it assumes consumers have perfect knowledge of their preferences, which may not be true in real life. Additionally, some argue that the theory assumes that consumers always make rational decisions, which may not be the case if they are influenced by behavioral biases or lack of information. Finally, some critics argue that the theory does not take into account external factors such as advertising, which may affect a consumer’s preferences.

    2. A budget constraint represents the limits that a consumer faces in terms of the amount of money he or she can spend on goods and services. It is often represented as a straight line in a graph, with the y-axis representing the quantity of one good and the x-axis representing the quantity of the other good. The slope of the budget constraint line is the ratio of the prices of the two goods.

    Utility maximization is the process by which a consumer allocates his or her income among various goods and services in such a way as to achieve maximum satisfaction or utility. This process takes into account the consumer’s preferences for different goods, the prices of those goods, and the consumer’s budget constraint.

    To maximize utility subject to a budget constraint, a consumer must choose the combination of goods that gives the highest level of satisfaction, given the amount of income that the consumer has available to spend. The optimal combination of goods can be found at the point where the indifference curve is tangent to the budget constraint line. At this point, the consumer is using all of his or her available income to purchase the goods that provide the highest level of satisfaction, subject to the budget constraint.
    ted by changes in price. However, this is not always the case, as changes in price can affect the demand for a commodity.

    2. A budget constraint represents the limits that a consumer faces in terms of the amount of money he or she can spend on goods and services. It is often represented as a straight line in a graph, with the amount of money allocated to one good on the vertical axis and the amount of money allocated to the other good on the horizontal axis. The consumer must allocate his or her limited budget in the most efficient manner possible, so as to maximize utility, or satisfaction, gained from the goods and services purchased.

    Utility maximization is the process of selecting the combination of goods and services that will provide the highest level of satisfaction to the consumer, given his or her budget constraint. This process is often represented graphically as the point at which the indifference curve tangent to the budget constraint, known as the consumer’s optimal consumption bundle.

    There are a few assumptions and criticisms of the utility maximization model. The assumptions include that consumers have complete information and rationality; that they have a well-defined set of preferences; that they have the ability to compare different goods and services; and that their preferences are stable over time. Some criticisms include that not all preferences may be measurable or comparable, and that consumers may not always behave rationally or choose the most efficient allocation of goods given their budget constraints.

    3. The Cobweb theory is an economic model that explains fluctuations in the price and supply of a commodity over time. It is named after the appearance of a spider’s web, which resembles the pattern of ups and downs in the supply and price of a commodity in the market. The theory was first introduced by Nicholas Kaldor in 1934.

    Assumptions:
    The Cobweb theory makes the following assumptions:
    1. The supply of a commodity adjusts to changes in the price of the commodity with a time lag.
    2. The demand for the commodity is stable and not affected by changes in price.
    3. The market is competitive, with many buyers and sellers.
    4. There are no significant changes in technology or other factors that can affect the supply of the commodity.

    Explanation:
    According to the Cobweb theory, when the price of a commodity increases, producers respond by increasing the supply of the commodity. However, there is a time lag between the increase in price and the increase in supply. This is because it takes time for producers to adjust their production levels in response to changes in the market.
    As the increased supply of the commodity reaches the market, the price begins to fall. At this point, some producers start reducing their production levels, resulting in a decrease in the supply of the commodity in the market. This decrease in supply eventually leads to an increase in the price of the commodity, and the cycle repeats itself.

    Criticisms:
    The Cobweb theory has been criticized for the following reasons:
    1. The theory assumes that the demand for the commodity is stable and not affected by changes in price. However, this is not always the case, as changes in price can affect the demand for a commodity.

    2. The theory does not take into account other factors that can affect the supply of a commodity, such as changes in technology or natural disasters.

    3. The theory assumes that the market is always competitive, which may not be the case in real life.

    In conclusion, the Cobweb theory is a useful tool for understanding the fluctuations in the price and supply of a commodity over time. However, it should be used in conjunction with other economic models and should not be relied upon as the sole predictor of market behavior.

  18. Avatar Ugwu chiamaka Emmanuella says:

    NAME: Ugwu chiamaka Emmanuella
    REG NO: 2016/237754
    DEPARTMENT: Science Laboratory Technology

    THE INDIFFERENCE CURVE THEORY
    “An indifference schedule is a list of combinations of two commodities the list being so arranged that a consumer is indifferent to the combinations, preferring none of any other”. Indifference curves are heuristic devices used in contemporary microeconomics to demonstrate consumer preference and the limitations of a budget.
    ASSUMPTIONS OF THE INDIFFERENCE CURVE ANALYSIS.
    It retains some of the assumptions of the cardinal theory, rejects. others and formulates its own. The assumptions of the ordinal theory are as follows.
    The consumer act rationally so as to maximize satisfaction.
    There are two goods X and Y
    The consumer possesses complete information about the prices of goods in the market.
    The prices of the two goods are given.
    The consumer’s taste, habits and income remain the same through out the analysis.
    The consumer arranges the that goods in a scale of preference. which means that he has both ‘preference’ and ‘indifference’ for the goods.
    CRITICISMS OF INDIFFERENCE CURVE ANALYSIS.
    The indifference curve analysis is no doubt regarded superior to the utility analysis but critics are not lacking in denouncing it. The main points or criticism are discussed below
    Old come in New Bottle: Prof. Roberton does not find anything news in the indifference curve technique and regards it simply as “the old wine in a new bottle”. It substitutes the concept of preference for utility replaces introspective cardinalism by introspective ordinalism (instead of cardinal numbers such as 1, 2, 3, etc, ordinal numbers I, ii, iii etc are used to indicate consumer preferences).
    Away from reality: According to Prof. Robertson: “The fact that the indifference hypothesis is more complicated of the two Psychologically (with regards to the assertion that the indifference Curve technique is superior to the cardinal utility analysis), happens to be more economical logically expands no guarantee that it is nearer to the truth”.
    Indifference curves are non-transitive. One of the greatest critics of the indifference Hypothesis is W.E. Armstrong who Argued that the consumer is indifferent not because he has complete knowledge of the various combinations available to him but because of his inability to judge the difference between alternative combinations.

    MEANING OF BUDGET CONSTRAINTS

    In Simple form budget Constraints is the limit of a consumer’s spending. A budget constraint represents all the combinations of goods and services that a consumer may purchase given current prices within his or her given income. Consumer theory uses the concepts of a budget constraint and a preference map as tools to examine the parameters of consumer choices . Both concepts have a ready graphical representation in the two-good case. The consumer can only purchase as much as their income will allow, hence they are constrained by their budget. The equation of a budget constraint is += where Pox is the price of good X, and Poy is the price of good Y, and m = income.

    UTILITY MAXIMIZATION
    This is also known as consumer equilibrium. It is a point where a consumer derives maximum satisfaction when his or her marginal utility equates the price of the commodity. At this point, marginal unity is equal to zero.
    Thus; Mux = Pricex = 0
    Utility maximization is the attainment of the greatest possible total utility. While consumers would want to attain maximum utility, they are constrained by the available income and the prices of the goods.
    Utility maximization is a strategic scheme whereby individuals and companies seek to achieve the highest level of satisfaction from their economic decisions. For example, when a company’s resources are limited, management will implement a plan of purchasing goods or services that provides the maximum benefit.

    COBWEB THEOREM.
    Cobweb theorem is a generic name for a theory of cyclical fluctuations in the prices and quantities of various agricultural commodities -fluctuation which arise because for certain agricultural products:
    (i) The quantity demanded of the commodity at any given time depends on its price at that time, whereas
    (ii) The quantity supplied at any given time depends on its price at a previous time when production plans were initially formulated. Furthermore, this is where planting must precede by an appreciable length of time the harvesting and sale of the output. The prices of agricultural commodities can fluctuate because of unplanned variations in supply and because of the difficulty of altering this supply in the short period. In the case of certain products, this difficulty of adjusting supply to demand appears capable of producing cyclical fluctuation in prices.
    We can illustrate how this can occur as follows:
    Let us suppose that producers base their decisions on how much to “plant” on the price currently reigning in the market. If the present price is high, they will be encouraged to invest or plant more, and vice versa. There plantings cannot however com straight on to the market, but become available only at the end of the period needed for growth, after the crop has been harvested and transported to the market.
    We can assume that this takes a given amount of time, which we can call the “period”. Thus the price reigning in a given the next period. If it represents the amount supplied in period t, then Sț= S(Pț -1)= lagged supply denotes that the value of S, depends on the price reigning in period (t-1) just preceding it. The demand curve on the other land hand is specified in the normal way the amount bought depending on the current price is so that Dț= D(Pț).
    Equilibrium would be given where the amount currently put on the market equals the amount demanded. Sț=Dț. The Cobweb cycle. Convergent oscillation of price and quantity.

  19. Avatar Ugwu chiamaka Emmanuella says:

    NAME: Ugwu chiamaka Emmanuella
    REG NO: 2016/237754
    DEPARTMENT: Economics

    THE INDIFFERENCE CURVE THEORY
    “An indifference schedule is a list of combinations of two commodities the list being so arranged that a consumer is indifferent to the combinations, preferring none of any other”. Indifference curves are heuristic devices used in contemporary microeconomics to demonstrate consumer preference and the limitations of a budget.
    ASSUMPTIONS OF THE INDIFFERENCE CURVE ANALYSIS.
    It retains some of the assumptions of the cardinal theory, rejects. others and formulates its own. The assumptions of the ordinal theory are as follows.
    The consumer act rationally so as to maximize satisfaction.
    There are two goods X and Y
    The consumer possesses complete information about the prices of goods in the market.
    The prices of the two goods are given.
    The consumer’s taste, habits and income remain the same through out the analysis.
    The consumer arranges the that goods in a scale of preference. which means that he has both ‘preference’ and ‘indifference’ for the goods.
    CRITICISMS OF INDIFFERENCE CURVE ANALYSIS.
    The indifference curve analysis is no doubt regarded superior to the utility analysis but critics are not lacking in denouncing it. The main points or criticism are discussed below
    Old come in New Bottle: Prof. Roberton does not find anything news in the indifference curve technique and regards it simply as “the old wine in a new bottle”. It substitutes the concept of preference for utility replaces introspective cardinalism by introspective ordinalism (instead of cardinal numbers such as 1, 2, 3, etc, ordinal numbers I, ii, iii etc are used to indicate consumer preferences).
    Away from reality: According to Prof. Robertson: “The fact that the indifference hypothesis is more complicated of the two Psychologically (with regards to the assertion that the indifference Curve technique is superior to the cardinal utility analysis), happens to be more economical logically expands no guarantee that it is nearer to the truth”.
    Indifference curves are non-transitive. One of the greatest critics of the indifference Hypothesis is W.E. Armstrong who Argued that the consumer is indifferent not because he has complete knowledge of the various combinations available to him but because of his inability to judge the difference between alternative combinations.

    MEANING OF BUDGET CONSTRAINTS

    In Simple form budget Constraints is the limit of a consumer’s spending. A budget constraint represents all the combinations of goods and services that a consumer may purchase given current prices within his or her given income. Consumer theory uses the concepts of a budget constraint and a preference map as tools to examine the parameters of consumer choices . Both concepts have a ready graphical representation in the two-good case. The consumer can only purchase as much as their income will allow, hence they are constrained by their budget. The equation of a budget constraint is ���+���=� where Pox is the price of good X, and Poy is the price of good Y, and m = income.

    UTILITY MAXIMIZATION
    This is also known as consumer equilibrium. It is a point where a consumer derives maximum satisfaction when his or her marginal utility equates the price of the commodity. At this point, marginal unity is equal to zero.
    Thus; Mux = Pricex = 0
    Utility maximization is the attainment of the greatest possible total utility. While consumers would want to attain maximum utility, they are constrained by the available income and the prices of the goods.
    Utility maximization is a strategic scheme whereby individuals and companies seek to achieve the highest level of satisfaction from their economic decisions. For example, when a company’s resources are limited, management will implement a plan of purchasing goods or services that provides the maximum benefit.

    COBWEB THEOREM.
    Cobweb theorem is a generic name for a theory of cyclical fluctuations in the prices and quantities of various agricultural commodities -fluctuation which arise because for certain agricultural products:
    (i) The quantity demanded of the commodity at any given time depends on its price at that time, whereas
    (ii) The quantity supplied at any given time depends on its price at a previous time when production plans were initially formulated. Furthermore, this is where planting must precede by an appreciable length of time the harvesting and sale of the output. The prices of agricultural commodities can fluctuate because of unplanned variations in supply and because of the difficulty of altering this supply in the short period. In the case of certain products, this difficulty of adjusting supply to demand appears capable of producing cyclical fluctuation in prices.
    We can illustrate how this can occur as follows:
    Let us suppose that producers base their decisions on how much to “plant” on the price currently reigning in the market. If the present price is high, they will be encouraged to invest or plant more, and vice versa. There plantings cannot however com straight on to the market, but become available only at the end of the period needed for growth, after the crop has been harvested and transported to the market.
    We can assume that this takes a given amount of time, which we can call the “period”. Thus the price reigning in a given the next period. If it represents the amount supplied in period t, then Sț= S(Pț -1)= lagged supply denotes that the value of S, depends on the price reigning in period (t-1) just preceding it. The demand curve on the other land hand is specified in the normal way the amount bought depending on the current price is so that Dț= D(Pț).
    Equilibrium would be given where the amount currently put on the market equals the amount demanded. Sț=Dț. The Cobweb cycle. Convergent oscillation of price and quantity.

  20. Avatar Okechukwu Mary Chisom says:

    Okechukwu Mary Chisom
    2020/246373
    Combined social science (Eco/soc)
    1.Whats an indifference curve?
    An indifference curve is a graphical representation of various combinations of two goods , such that a consumer is indifferent between any of them. The curve shows all the possible combinations of goods that yield equal satisfaction or utility to the consumer. Indifference curves generally slope downward from left to right, illustrating the principle of diminishing marginal utility.

    The assumptions
    1.Transitivity: If a consumer prefers Bundle A to Bundle B, and Bundle B to Bundle C, then the consumer will also prefer Bundle A to Bundle C.
    2.Completeness: A consumer has a clear preference between any two bundles of goods, which means the consumer can compare any two bundles and determine which one they prefer or if they are indifferent between them.

    Criticisms of indifference curves
    1.is that they rely on the assumption that consumers can compare the utility or satisfaction they get from different combinations of goods. However, utility is not directly observable, and some critics argue that it is impossible to know whether a consumer really views a bundle of goods as equal to another.
    2. criticism of indifference curves is that they may not always accurately reflect consumer behavior. For example, they may not account for changing preferences over time, or for cases where goods are complementary (meaning the consumption of one good increases the value of the other) or substitutable (meaning one good can be used in place of another).

    Overall, while indifference curves can provide a useful tool for analyzing consumer behavior and decision-making, they come with certain assumptions and limitations that must be taken into account.
    Budget constraint and utility maximization are key concepts in microeconomics that relate to the decisions that consumers make when purchasing goods and services.

    2.A budget constraint is essentially a limit on the amount of money a consumer can spend on a combination of goods and services, given their income and the prices of those goods and services. It is typically represented using an equation in terms of prices and quantities, where the total amount spent cannot exceed the consumer’s income:
    P1Q1 + P2Q2 + … + PnQn ≤ I
    Here, P1, P2, …, Pn are the prices of the n goods, Q1, Q2, …, Qn are the corresponding quantities consumed, and I is the consumer’s income.
    Utility maximization, on the other hand, is the process by which consumers choose the combination of goods and services that gives them the highest possible level of satisfaction, or utility, subject to the budget constraint. This is typically represented using indifference curves, which show all the combinations of two goods that provide the same level of utility to the consumer. The optimal combination of goods is the one where the highest possible level of satisfaction is achieved, while still staying within the budget constraint.
    Overall, the concepts of budget constraint and utility maximization are important in helping us understand how consumers make choices and optimize their spending patterns.

    3. The Cobweb Theory is a dynamic analysis theory that is used to explain the fluctuations in some commodity markets with long lags between production and sale . The theory suggests that under certain conditions, the market equilibrium for a commodity can be unstable and can exhibit oscillatory behavior over time. The Cobweb Theory is based on the idea that producers make production decisions based on the current market price of the commodity, which in turn affects the supply of the commodity in the market. However, since there is a lag between the time producers make production decisions and the time the commodity is available in the market, the supply of the commodity may not match the demand for it.
    There are many variations of the Cobweb Theory, but a basic version assumes that the supply of a commodity in a market is determined by the production decisions of producers in the previous period, while the demand for the commodity is determined by market conditions and consumer behavior. In this scenario, the price of the commodity in the current period is determined by the intersection of the supply and demand curves, and producers use this price to make production decisions in the next period.
    One of the key features of the Cobweb Theory is that it can generate cyclical or oscillatory behavior in the market. For instance, in a market where producers tend to overreact to prices and quickly adjust their production to changes in the market, the market can exhibit regular boom and bust cycles. Alternatively, in a market where producers tend to underreact to prices, the market may exhibit damped oscillations, where the oscillations gradually die out over time.
    While the Cobweb Theory has been widely studied and applied in different fields, it has also been criticized for its assumptions and limitations. For instance, the theory assumes that producers have perfect information and make rational decisions based on this information. In reality, producers may have limited information or may make decisions based on other factors, such as political or personal considerations. Nonetheless, the Cobweb Theory provides a useful framework for analyzing the behavior of markets with long lags between production and sale.

  21. Avatar Onoka Esther Chika says:

    Name: Onoka Esther Chika

    Department: Combined Social Sciences(Economic and Psychology)

    Reg No: 2020/242905

    1: Briefly discuss the indifference curve(including its assumptions and criticism)

    Indifference curve is a graphical representation of a combined products that gives similar kind of satisfaction to a consumer thereby making them indifferent. An indifference curve shows a combination of two goods in various quantities that provides equal satisfaction (utility) to an individual. It is used in economics to describe the point where individuals have no particular preference for either one good or another based on their relative

    An indifference curve defines a simple fundamental that with the increase in the utility from one cmmodity, the utility from the other commodity decreases, simultaneously, the total utility derived from both the products is the same at all the combinations.Indifference curve is said to make unrealistic assumptions about human behaviour. It is unable to explain risky choices undertaken by the consumer. It has been criticized for being an ‘old wine in a new bottle’ for it has merely rehashed the concept of diminishing marginal utility of a product in new terms.

    ASSUMPTIONS OF INDIFFERENCE CURVE ARE:
    (1) indifference curves can never cross
    (2) the farther out an indifference curve lies, the higher the utility it indicates
    (3) indifference curves always slope dow

    CRITICMS OF INDIFFERENCE CURVE

    The major criticism of this theory is that it is based on unrealistic assumptions which question its economic viability.

    Another we move up along the indifference curve the consumer has more of the good she likes, and also more of the good she does not like. This violates the assumption that more is preferred to less.

    Some disregard the concept claiming that a concave indifference curve is even possible theoretically. In the practical scenario, the preference of a consumer keeps on changing, which makes this concept vague.

    2: Write short note on Budget constraint and utility maximization

    Budget constraint is the boundary of the opportunity set—all possible combinations of consumption that someone can afford given the prices of goods and the individual’s income. Budget constraint is the total amount of items you can afford within a current budget. Budget constraint illustrates the range of choices available within that budget. Opportunity cost is the amount or item you give up in exchange for something else. Sunk cost is the amount spent in the past and cannot be recovered.

    While Utility maximization is the concept that individuals and organizations seek to attain the highest level of satisfaction from their economic decisions.In utility maximization, consumers strive to spend money in ways that provide the greatest amount of resources and satisfaction for the least cost. Learn about budget constraints and consumer choices in the context of utility maximization, review utility as it pertains to consumers, and understand why consumers care about this and the impact if they ignore it.

    3: Extensively discuss the cobweb theory.

    Cobweb theory is the idea that price fluctuations can lead to fluctuations in supply which cause a cycle of rising and falling prices. In a simple cobweb model, we assume there is an agricultural market where supply can vary due to variable factors, such as the weather.
    Cobweb theory is the idea that price fluctuations can lead to fluctuations in supply which cause a cycle of rising and falling prices.

    In a simple cobweb model, we assume there is an agricultural market where supply can vary due to variable factors, such as the weather.

    Assumptions of Cobweb theory

    In an agricultural market, farmers have to decide how much to produce a year in advance – before they know what the market price will be. (supply is price inelastic in short-term)
    A key determinant of supply will be the price from the previous year.
    A low price will mean some farmers go out of business. Also, a low price will discourage farmers from growing that crop in the next year.
    Demand for agricultural goods is usually price inelastic (a fall in price only causes a smaller % increase in demand).

  22. Avatar Akubue AbleGod Akachukwu, 2020/242574 says:

    NAME: Akubue AbleGod Akachukwu
    REG. NO.: 2020/242574
    DEPT. : ECONOMICS
    1. THE INDIFFERENCE CURVE (Assumptions and Criticisms).
    An indifference curve is the one which shows the possible combination of two commodities, each yielding the same satisfaction or utility to the consumer. It can also be defined as a curve that shows a combination of two goods X and Y in various quantities that provides equal satisfaction (utility) to an individual. In economics, it is used to define the point where individuals have no particular preference for either one good or another based on their relative quantity These curves are heuristic devices used to used in contemporary microeconomics to demonstrate consumer preference and the limitations to a budget.
    *ASSUMPTIONS OF INDIFFERENCE CURVE
    I. The consumer acts rationality so as to maximize satisfaction.
    II. There are two goods X and Y.
    III. The consumer possess complete information about the prices of the goods in the market.
    IV. The prices of the two goods are given.
    V. The curve is always convex to the origin.
    VI. The consumer is in a position to order all possible combination of the two goods.
    *CRITICISMS OF INDIFFERENCE CURVE
    I. Old wine in new bottle: That’s it simply substitutes the concept of preference for utility, marginal utility by marginal rate of substitution.
    II. Away from reality: according to Prof. Robertson, it said with regards to the assertion that the indifference curve technique is superior to the cardinal utility analysis, claims it is more economical logically affords no guarantee that it was nearer to the truth.
    III. Midway house: Indifference curves are hypothetical because they are not subject to direct measurements.
    IV. Knight argus that the observed market behavior behavior of the consumer can not be explained objectively with the help of the in difference curve analysis.
    V. The indifference curve analysis becomes ridiculous when it is assumed that the goods are divisible into small units.

    2i.BUDGET CONSTRAINT
    It simply shows What the consumer can afford.most people would like to increase the quantity and quality of goods they consume, but household’s consumption choices are limited by the household’s income and by the prices of goods and services available. The constraint to a household’s consumption choices are described by the budget constraint or budget line.
    II.UTILITY MAXIMIZATION
    It’s also known as consumer equilibrium. It’s a point where a consumer derives maximum satisfaction when his or her marginal utility equates the price of the commodity. At this point marginal utility equates to zero.
    Thus ; MUx = PRICE x = 0
    It’s one of the attainment of the greatest possible utility.while consumers will want to attain maximum utility, they are constrained by the available income and prices of the goods.
    3. COBWEB THEORY
    It’s an economic model that explains why price might be subject to periodic fluctuations in certain types of markets. It explains cyclical supply and demand in a market where the amount produced must be selected before prices are watched closely. This model was analysed by Nicholas kaldor in 1934. Coining the term” cobweb theorem” .(see kaldor 1938 and pashigian 2008). Citing analysis in German by Henry Schultz and Umberto Ricci.
    This theory is the ideal that price fluctuations can lead to fluctuations in supply which causes a cycle of rising and falling prices. It is mostly used in farming sector, This model can explain the fluctuations in the supply and demand balance of some mass produced products with Long production cycles.
    * CRITICISMS OF COBWEB TTHEORY
    I. This theorem assumes that output is solely governed by price , Thus it is an Unrealistic assumption.
    II It’s not strictly a trade cycle theorem for it is concerned only with the farming sector.
    III. It’s based upon the unsound assumption that the cross which farmers plants in 2008 depends solely on the prices ruling in 2007, as a matter of fact it is contrary, when 2007 prices undoubtedly influence decisions regarding 2008 crops , producers are also influenced by their expectations.
    *SUMMARY
    In spite of it’s shortcomings, cobweb model is important aside it’s applications in the cyclical behaviour of wheat and other agricultural products’ markets. It focuses attention on the important fact that the present events depend upon the past occurrences. It entails us to use the technique to demonstrate the process of change over time.

  23. Avatar Uwaezuoke Favour Ifunanya says:

    Name: Uwaezuoke Favour Ifunanya
    Reg. No: 2020/242628
    Department: Economics
    Level: 200

    1. Indifference Curve Definition:
    An indifference curve (IC) is a graphical representation of different combinations or consumption bundles of two goods or commodities, providing equal levels of satisfaction and utility for the consumer. In other words, a consumer is considered indifferent between any two bundles indicated by a point on the curve, provided these combinations give the same utility.

    Indifference Curve Assumptions includes:
    a)The consumer is rational to maximize the satisfaction and makes a transitive or consistent choice;
    b)There are two goods X and Y;
    c)Consumers can rank a combination of commodities based on their satisfaction levels. Usually, the combination with the higher satisfaction level is preferred;
    d)The consumer behavior remains constant in the analysis;
    e)The utility is expressed in terms of ordinal numbers;
    f)Assumes marginal rate of substitution to diminish.

    Criticisms of the indifference curve includes:
    a) Assumptions of the analysis are unrealistic;
    b) It does no take into account the risk of the choices;
    c)the indifference curve fails to consider other factors concerning consumer behavior such as speculative demand;
    d)It also has a weak ordering hypothesis;
    f) the consumer is not rational.

    2.)
    Definition of Budget constraints:
    A budget constraint refers to the maximum combined items one can afford with the income generated by the individual.
    A budget constraint occurs when a consumer is limited in consumption patterns by a certain income.

    When looking at the demand schedule we often consider effective demand. Effective demand is what people are actually able to spend given their limitations of income.
    Temporary budget constraints can be overcome by borrowing, but in the long term budget constraints are determined by income such as rent and wages.

    3. Cobweb theory
    Cobweb theory is the idea that price fluctuations can lead to fluctuations in supply which cause a cycle of rising and falling prices.

    In a simple cobweb model, we assume there is an agricultural market where supply can vary due to variable factors, such as the weather.

    Assumptions of Cobweb theory
    In an agricultural market, farmers have to decide how much to produce a year in advance – before they know what the market price will be. (supply is price inelastic in short-term)
    A key determinant of supply will be the price from the previous year.
    A low price will mean some farmers go out of business. Also, a low price will discourage farmers from growing that crop in the next year.
    Demand for agricultural goods is usually price inelastic (a fall in price only causes a smaller % increase in demand)

  24. Avatar Omeje Sharon Amarachi says:

    Indifference Curve?
    An indifference curve is a contour line where utility remains constant across all points on the line. In economics, an indifference curve is a line drawn between different consumption bundles, on a graph charting the quantity of good A consumed versus the quantity of good B consumed. At each of the consumption bundles, the individual is said to be indifferent.
    Graphically, the indifference curve is drawn as a downward sloping convex to the origin. The graph shows a combination of two goods that the consumer consumes.
    The above diagram shows the U indifference curve showing bundles of goods A and B. To the consumer, bundle A and B are the same as both of them give him the equal satisfaction. In other words, point A gives as much utility as point B to the individual. The consumer will be satisfied at any point along the curve assuming that other things are constant.
    Assumption of indifference curve:
    (1) The prices of the two goods are given.
    (2) The consumer’s tastes, habits and income remain the same throughout the analysis.
    (3) He prefers more of X to less of У or more of Y to less of X.
    (4) An indifference curve is negatively inclined sloping downward
    (5) An indifference curve is always convex to the origin.
    (6) An indifference curve is smooth and continuous which means that the two goods are highly divisible and those levels of satisfaction also change in a continuous manner.
    (7) The consumer arranges the two goods in a scale of preference which means that he has both ‘preference’ and ‘indifference’ for the goods. He is supposed to rank them in his order of preference and can state if he prefers one combination to the other or is indifferent between them.
    (8) Both preference and indifference are transitive. It means that if combination A is preferable to В, and В to C, then A is preferable to C. Similarly, if the consumer is indifferent between combinations A and B, and В and C, then he is indifferent between A and C. This is an important assumption for making consistent choices among a large number of combinations.
    (9) The consumer is in a position to order all possible combinations of the two goods.
    Critics of indifferent curve;
    (1) Cardinal Measurement implicit in l.C. Technique:
    Prof. Robertson further points out that the cardinal measurement of utility is implicit in the indifference hypothesis when we analyse substitutes and complements. It is assumed in their case that the consumer is capable of regarding a change in one situation to be preferable to another change in another situation. To explain it, Robertson takes three situations A, В and C, as shown in Figure I2.38. Suppose the consumer compares one change in situation AB with another change in situation BC.
    He prefers the change AB more highly than the change BC. If another point D is taken, then he prefers the change AD as highly as the change DC. This, according to Robertson, is equivalent to saying that the space AC is twice the space AD and we are back in the world of cardinal measurement of utility. Thus when changes in two situations are compared as in the case of substitutes and complements, it leads to the cardinal measurement of utility.

    (2) Midway House:
    Indifference curves are hypothetical because they are not subject to direct measurements. Although consumer choices are grouped in combinations on the ordinal scale, no operational method has been devised so far to measure the exact shape of an indifference curve. This stems from the fact that ‘the peculiar logical structure of the theory has low empiric content.’ The failure of Hicks to present a scientific approach to the consumer’s behaviour led Schumpeter to characterize the indifference analysis as a ‘midway house;’. He remarked: “From a practical standpoint we are not much better off when drawing purely imaginary indifference curves than we are when speaking of purely imaginary utility functions.”

    (3) Fails to Explain the Observed Behaviour of the Consumer:
    Knight argues that the observed market behaviour of the consumer cannot be explained objectively. It is a mistake not to base the analysis of consumer’s demand on the cardinal utility theory. For instance, the income and substitution effects cannot be distinguished on the basis of mere observation. In fact, what we observe is the composite price effect. Similarly, the theory of complementaries and substitutes based on the principle of marginal rate of substitution cannot be discovered from the market data. Samuelson has explained the observed behaviour of the consumer in his Revealed Preference Theory.
    (4) Indifference Curves are Non-transitive:
    One of the greatest critics of the indifference hypothesis is W.E. Armstrong who argues that the consumer is indifferent not because he has complete knowledge of the various combinations available to him but because of his inability to judge the difference between alternative combinations. He further opines that any two points on an indifference curve are the points of indifference not because they are of iso-utility but of zero-utility difference.
    It is only when utility difference is zero that the relation between any two or more points on an indifference curve is symmetrical. Armstrong’s arguments can be explained with the help of Figure 12.39 where on I1 curve points P, Q, R and S represent different combinations of the goods X and Y. The points P and Q, R and S are so drawn that the difference between each pair is imperceptable.
    2.Definition of Budget constraints
    A budget constraint occurs when a consumer is limited in consumption patterns by a certain income.When looking at the demand schedule we often consider effective demand. Effective demand is what people are actually able to spend given their limitations of income.
    Temporary budget constraints can be overcome by borrowing, but in the long term budget constraints are determined by income such as rent and wages.
    (i ) Utility maximisation refers to the concept that individuals and firms seek to get the highest satisfaction from their economic decisions.
    For example, when deciding how to spend a fixed some, individuals will purchase the combination of goods/services that give the most satisfaction.
    Utility maximisation can also refer to other decisions – for example, the optimal number of hours for labour to supply their labour. Working more increases income, but reduces leisure time.
    3.Cobweb theory
    Cobweb theory is the idea that price fluctuations can lead to fluctuations in supply which cause a cycle of rising and falling prices.

    In a simple cobweb model, we assume there is an agricultural market where supply can vary due to variable factors, such as the weather.
    Assumptions of Cobweb theory
    In an agricultural market, farmers have to decide how much to produce a year in advance – before they know what the market price will be. (supply is price inelastic in short-term)
    A key determinant of supply will be the price from the previous year.
    A low price will mean some farmers go out of business. Also, a low price will discourage farmers from growing that crop in the next year.
    Demand for agricultural goods is usually price inelastic (a fall in price only causes a smaller % increase in demand)
    cobweb-theory
    If there is a very good harvest, then supply will be greater than expected and this will cause a fall in price.
    However, this fall in price may cause some farmers to go out of business. Next year farmers may be put off by the low price and produce something else. The consequence is that if we have one year of low prices, next year farmers reduce the supply.
    If supply is reduced, then this will cause the price to rise.
    If farmers see high prices (and high profits), then next year they are inclined to increase supply because that product is more profitable.
    In theory, the market could fluctuate between high price and low price as suppliers respond to past prices.

  25. Avatar Kenechukwu Emmanuel says:

    In Fulfillment Of ECO 201 Assignment

    Name: Kenechukwu Emmanuel Onyedika
    Department: Economic Major
    Reg No: 2020/242637

    1) Briefly discuss the indifference curve(including its assumptions and criticisms)

    An indifference curve is a graph showing combination of two goods that give the consumer equal satisfaction and utility. Each point on an indifference curve indicates that a consumer is indifferent between the two and all points give him the same utility.

    Graphically, the indifference curve is drawn as a downward sloping convex to the origin. The graph shows a combination of two goods that the consumer consumes.

    Assumption Of Indifference Curve include:

    1. Consumer is rational; 
2. Price of goods is constant;
3. Higher IC curve gives the highest satisfaction and lowest curve gives lowest satisfaction;
4. Two IC curves never intersect each other;
5. Consumers spend a small part of their income.

    Criticisms Of Indifference Curve include:

    There are several criticisms of the indifference curve technique. They are as follows:
    1) Assumptions of the analysis are unrealistic
    2) It does no take into account the risk of the choices
    3) It also has a weak ordering hypothesis

    2) Write short note on Budget constraint and utility maximization 

    Budget Constraint Definition

    Let’s jump straight into the definition of the budget constraint! When economists refer to a budget constraint, they mean the constraints imposed on consumer choices by their limited budget.

    A budget constraint is a constraint imposed on consumer choice by their limited budget.

    Take a look at an example below.

    If you have only $100 to spend in a store to buy a coat, and you like two coats, one for $80 and one for $90, then you can only buy one. You have to choose between the two coats as the combined price of the two coats is greater than $100.

    What is Utility Maximization

    Utility maximisation is the concept that consumers and businesses seek to maximise their satisfaction or utility from their purchases. In other words, when $100 is spent, then $100 worth of utility is received.

    Neither consumers nor businesses choose an option which would provide a lower level of utility over another option. For example, a consumer in the store is faced with the choice between two chocolate bars. They are both priced at $1 each. Chocolate bar A gives the consumer a utility of $1, whilst Chocolate bar B provides a utility of $0.95.
    In turn, the consumer logically picks Chocolate bar A as it provides the greatest amount of utility. Consumers will pick what provides them the greatest satisfaction at any certain point in time. However, that decision of maximising utility may change the next day as they value Chocolate bar B more.

    3) Extensively discuss the Cobweb theory.

    Cobweb theorem

    The cobweb theorem purports to explain persistent fluctuations of prices in selected agricultural markets. It was first developed in the 1930s under static price expectations where the predicted price equalled actual price in the last period. Muth’s rational expectations hypothesis posited that forecast errors will not be serially correlated and the pattern of past forecast errors cannot be used to improve the accuracy of the forecasts. The fundamental question of whether observed price cycles are better explained by systematic errors in price forecasts or by the cumulative impact of unpredictable shocks has not as yet been definitively addressed.

    The cobweb theorem is an economic model used to explain how small economic shocks can become amplified by the behaviour of producers. The amplification is, essentially, the result of information failure, where producers base their current output on the average price they obtain in the market during the previous year. This is, to some extent, a non-rational decision, given that a supply side shock between planting and harvesting (such as an unexpectedly good or bad harvest) can lead to an unexpectedly lower or higher price. This results in either a higher output or a lower output in subsequent years, and moves the market into a long-term disequilibrium position.

  26. Indifference curve:
    An indifference curve shows the combination between two goods in various quantities as provides equal satisfaction for an individual
    Assumptions:
    . Prices of goods are constant
    .consumer spend a small part of their income
    .marginal rate of substation diminishes
    .there is possibility of changing another goods but there is no perfect substitute
    Criticism:
    .Indifference curve is said to make unrealistic assumptions about human behavior
    .it is unable to explain the risky choices undertaken by the consumer

  27. Avatar Oha Ujunwa Emmanuella. 2020/242643 says:

    1). THE INDIFFERENCE CURVE
    The indifference curve adopted from the ordinal school of thought shows two goods in various quantities that provides individual satisfaction. The higher the indifference curve, the higher the level of satisfaction derived from combining two goods X and Y. Some assumptions of the indifference curve includes
    a. It assumes consumers act rationally to maximize satisfaction.
    b. There are two goods X and Y
    c. Consumer’s taste, fashion are constant.
    d. Prices of the two goods are taken.
    An indifference curve is negatively sloping downward and it is convex to the origin. Some of the criticisms of the indifference curve includes:
    a. The consumer may not always behave rationally.
    b. Indifference curve analysis is only possible for two goods.
    c. Consumer’s taste and fashion can’t always be constant.
    d. It cannot explain the consumer behaviour when he has to choose among alternatives involving risk or uncertainty of expectation.

    2). A SHORT NOTE ON BUDGET CONSTRAINT AND UTILITY MAXIMIZATION.
    Budget Constraint
    This occurs when a consumer is limited in consumption patterns by a certain income. Budget constraint determines the total amount of commodities a consumer can afford within a current budget.
    Utility Maximization
    This concept explains how individuals and organizations seek to attain the highest level of satisfaction from their economic decisions. Utility maximization is important because it helps economists understand how and why consumers allocate income in a certain way.

    3). THE COBWEB THEORY
    The cobweb theory is an economic model that explains why prices might be subject to periodic fluctuations in certain types of markets. Cobweb theory is the idea that price fluctuation can lead to fluctuations in supply which cause a cycle of inflation and deflation. The cobweb theorem is an economic model used to explain how small economic shocks can become amplified by the behaviour of producers. The amplification is, essentially, the result of information failure, where producers base their current output on the average price they obtain in the market during the previous year. It describes cyclical supply and demand in a market where the amount produced must be chosen before prices are observed. Nicholas Kaldor analyzed the model in 1934, coining the term “cobweb theorem”.

  28. Avatar Kalu Favour Enyindiya. Reg number: 2020/249472 says:

    Name: Kalu Favour Enyindiya
    Reg number: 2020/249472
    1. *INDIFFERENCE CURVE (Assumptions and Criticism)*
    An indifference curve (IC) is a graphical representation of different combinations or consumption bundles of two goods or commodities, providing equal levels of satisfaction and utility for the consumer. In other words, a consumer is considered indifferent between any two bundles indicated by a point on the curve, provided these combinations give the same utility.
    The indifference curve in economics examines demand patterns for commodity combinations, budget constraints and helps understand customer preferences. The theory applies to welfare economics and microeconomics, such as consumer and producer equilibrium, measurement of consumer surplus, theory of exchange, etc.
    Indifference Curve Assumptions:
    The consumer is rational to maximize the satisfaction and makes a transitive or consistent choice.
    The consumer is expected to buy any of the two commodities in a combination.Consumers can rank a combination of commodities based on their satisfaction levels. Usually, the combination with the higher satisfaction level is preferred.
    The consumer behavior remains constant in the analysis.
    The utility is expressed in terms of ordinal numbers. Assumes marginal rate of substitution to diminish.
    Indifference Curve Criticism:
    Indifference curve is said to make unrealistic assumptions about human behaviour. It is unable to explain risky choices undertaken by the consumer. It has been criticized for being an ‘old wine in a new bottle’ for it has merely rehashed the concept of diminishing marginal utility of a product in new terms.

    2. BUDGET CONSTRAINT AND UTILITY MAXIMIZATION
    A budget constraint is an economic term referring to the combined amount of items you can afford within the amount of income available to you. For example, if you are a sales professional with a $1,000 budget for promotional items, this sets the upper limit on items you can purchase. The cost of each item and the minimum quantity you need would determine how many you can buy within your budget.

    How do budget constraints work?
    When calculating budget constraints, you normally have a number of things under consideration for which you are trying to budget. However, it’s easier to understand how budget constraints work if you just consider two sets of items. You could spend your entire budget on item one, or you could spend it all on item two. Alternatively, you could buy a combination of some of item one and some of item two. The proportions of each item you purchase would be constrained by your budget
    UTILITY MAXIMIZATION
    Utility maximization is a strategic scheme whereby individuals and companies seek to achieve the highest level of satisfaction from their economic decisions. For example, when a company’s resources are limited, management will implement a plan of purchasing goods or services that provides the maximum benefit.

    Understanding Utility Maximization
    The combination of goods or services that maximize utility is determined by comparing the marginal utility of two choices and finding the alternative with the highest total utility within the budget limit. The decision is influenced by the option that produces a higher level of satisfaction. This explains how companies and individuals develop consumption habits.
    The consumer may consider purchasing more of one item and less of another. Through maximizing utility, the consumer will buy an item that produces the greatest marginal utility with the least amount of spending.

    Total Utility Maximization
    Total utility refers to the total amount of satisfaction that a person obtains by consuming a specific quantity of units of a product at a given time. The greater the consumer’s total utility, the higher the measure of satisfaction acquired.

    Marginal Utility Maximization
    Marginal utility refers to the additional satisfaction that a consumer achieves from utilizing one additional item. For example, if the utility of consuming the first cake is ten utils and eight utils for the second cake, the marginal utility of consuming the second cake is eight utils. If two utils are assigned to the utility of the third cake, then the marginal utility of consuming the third cake is two utils.

    3. COBWEB THEORY
    The cobweb model or cobweb theory is an economic model that explains why prices might be subject to periodic fluctuations in certain types of markets. It describes cyclical supply and demand in a market where the amount produced must be chosen before prices are observed. Producers’ expectations about prices are assumed to be based on observations of previous prices. Nicholas Kaldor analyzed the model in 1934, coining the term “cobweb theorem” (see Kaldor, 1938 and Pashigian, 2008), citing previous analyses in German by Henry Schultz and Umberto Ricci.
    Cobweb theory is the idea that price fluctuations can lead to fluctuations in supply which cause a cycle of rising and falling prices. In a simple cobweb model, we assume there is an agricultural market where supply can vary due to variable factors, such as the weather.
    Cobweb theory has played an essential role incorporating both features as explanations for endogeneity of price and production cycles in commodity markets. Empirical testing of cobweb models explored the possibility that “short run” supply and demand elasticities could produce temporary market instability.
    The cobweb model can explain the fluctuations in the supply and demand balance of some mass-produced products with long production cycles. The production and consumption of these products have the following characteristics. Information is transmitted from the consumer end to the production end.

    Criticism of Cobweb Theory:
    Like all other theories of trade cycle, the Cobweb Theory too suffers from some severe limitations:
    (1) This is not strictly a trade cycle theorem for it is concerned only with the farming sector. There are a good many others sphere of production where it says nothing.
    (2) This theorem assumes that the output is solely governed by price. Thus is unrealistic assumption. The fact is that the output particularly of farm products is determined not only by price, but by several other factors—weather, prices of the factors of production
    (3) The theory is based upon the unsound assumption that the crop which farmer plants in 2008 depends solely on the prices ruling in 2007. As a matter of fact this is contrary to facts. When 2007 prices undoubtedly influence decisions regarding 2008 crops, producers are also influenced by their expectations. Producer’s decisions with regard production during any given period depend not only upon the backward look but also on the forward guess. If this year’s price is high, producers are apt to foresee some reaction to the high price and anticipate larger output by their competitors next year.

    Conclusion to Cobweb Theory:
    We conclude that in spite of its shortcomings the Cobweb Theory is important besides its application as an explanation for the cyclical behaviour of wheat and other agricultural products’ markets. It concentrates attention on the important fact that the present events depend upon the past happenings It furnishes us with a technique to demonstrate the process of change over time.

  29. Avatar Kalu Favour Enyindiya says:

    1. *INDIFFERENCE CURVE (Assumptions and Criticism)*
    An indifference curve (IC) is a graphical representation of different combinations or consumption bundles of two goods or commodities, providing equal levels of satisfaction and utility for the consumer. In other words, a consumer is considered indifferent between any two bundles indicated by a point on the curve, provided these combinations give the same utility.
    The indifference curve in economics examines demand patterns for commodity combinations, budget constraints and helps understand customer preferences. The theory applies to welfare economics and microeconomics, such as consumer and producer equilibrium, measurement of consumer surplus, theory of exchange, etc.
    Indifference Curve Assumptions:
    The consumer is rational to maximize the satisfaction and makes a transitive or consistent choice.
    The consumer is expected to buy any of the two commodities in a combination.Consumers can rank a combination of commodities based on their satisfaction levels. Usually, the combination with the higher satisfaction level is preferred.
    The consumer behavior remains constant in the analysis.
    The utility is expressed in terms of ordinal numbers. Assumes marginal rate of substitution to diminish.
    Indifference Curve Criticism:
    Indifference curve is said to make unrealistic assumptions about human behaviour. It is unable to explain risky choices undertaken by the consumer. It has been criticized for being an ‘old wine in a new bottle’ for it has merely rehashed the concept of diminishing marginal utility of a product in new terms.

    2. BUDGET CONSTRAINT AND UTILITY MAXIMIZATION
    A budget constraint is an economic term referring to the combined amount of items you can afford within the amount of income available to you. For example, if you are a sales professional with a $1,000 budget for promotional items, this sets the upper limit on items you can purchase. The cost of each item and the minimum quantity you need would determine how many you can buy within your budget.

    How do budget constraints work?
    When calculating budget constraints, you normally have a number of things under consideration for which you are trying to budget. However, it’s easier to understand how budget constraints work if you just consider two sets of items. You could spend your entire budget on item one, or you could spend it all on item two. Alternatively, you could buy a combination of some of item one and some of item two. The proportions of each item you purchase would be constrained by your budget
    UTILITY MAXIMIZATION
    Utility maximization is a strategic scheme whereby individuals and companies seek to achieve the highest level of satisfaction from their economic decisions. For example, when a company’s resources are limited, management will implement a plan of purchasing goods or services that provides the maximum benefit.

    Understanding Utility Maximization
    The combination of goods or services that maximize utility is determined by comparing the marginal utility of two choices and finding the alternative with the highest total utility within the budget limit. The decision is influenced by the option that produces a higher level of satisfaction. This explains how companies and individuals develop consumption habits.
    The consumer may consider purchasing more of one item and less of another. Through maximizing utility, the consumer will buy an item that produces the greatest marginal utility with the least amount of spending.

    Total Utility Maximization
    Total utility refers to the total amount of satisfaction that a person obtains by consuming a specific quantity of units of a product at a given time. The greater the consumer’s total utility, the higher the measure of satisfaction acquired.

    Marginal Utility Maximization
    Marginal utility refers to the additional satisfaction that a consumer achieves from utilizing one additional item. For example, if the utility of consuming the first cake is ten utils and eight utils for the second cake, the marginal utility of consuming the second cake is eight utils. If two utils are assigned to the utility of the third cake, then the marginal utility of consuming the third cake is two utils.

    3. COBWEB THEORY
    The cobweb model or cobweb theory is an economic model that explains why prices might be subject to periodic fluctuations in certain types of markets. It describes cyclical supply and demand in a market where the amount produced must be chosen before prices are observed. Producers’ expectations about prices are assumed to be based on observations of previous prices. Nicholas Kaldor analyzed the model in 1934, coining the term “cobweb theorem” (see Kaldor, 1938 and Pashigian, 2008), citing previous analyses in German by Henry Schultz and Umberto Ricci.
    Cobweb theory is the idea that price fluctuations can lead to fluctuations in supply which cause a cycle of rising and falling prices. In a simple cobweb model, we assume there is an agricultural market where supply can vary due to variable factors, such as the weather.
    Cobweb theory has played an essential role incorporating both features as explanations for endogeneity of price and production cycles in commodity markets. Empirical testing of cobweb models explored the possibility that “short run” supply and demand elasticities could produce temporary market instability.
    The cobweb model can explain the fluctuations in the supply and demand balance of some mass-produced products with long production cycles. The production and consumption of these products have the following characteristics. Information is transmitted from the consumer end to the production end.

    Criticism of Cobweb Theory:
    Like all other theories of trade cycle, the Cobweb Theory too suffers from some severe limitations:
    (1) This is not strictly a trade cycle theorem for it is concerned only with the farming sector. There are a good many others sphere of production where it says nothing.
    (2) This theorem assumes that the output is solely governed by price. Thus is unrealistic assumption. The fact is that the output particularly of farm products is determined not only by price, but by several other factors—weather, prices of the factors of production
    (3) The theory is based upon the unsound assumption that the crop which farmer plants in 2008 depends solely on the prices ruling in 2007. As a matter of fact this is contrary to facts. When 2007 prices undoubtedly influence decisions regarding 2008 crops, producers are also influenced by their expectations. Producer’s decisions with regard production during any given period depend not only upon the backward look but also on the forward guess. If this year’s price is high, producers are apt to foresee some reaction to the high price and anticipate larger output by their competitors next year.

    Conclusion to Cobweb Theory:
    We conclude that in spite of its shortcomings the Cobweb Theory is important besides its application as an explanation for the cyclical behaviour of wheat and other agricultural products’ markets. It concentrates attention on the important fact that the present events depend upon the past happenings It furnishes us with a technique to demonstrate the process of change over time.

  30. Name: Sunday Linus
    Reg. Number: 2019/250066
    Email: linussunday0@gmail.com
    Blog: https://linussunday.blogspot.com/?m=1

  31. Avatar OGUANYA CHIDERA FAITH says:

    OGUANYA CHIDERA FAITH
    2020/242638
    ECONOMICS DEPT

    1. Indifference curve is said to make unrealistic assumptions about human behaviour. It is unable to explain risky choices undertaken by the consumer. It has been criticized for being an ‘old wine in a new bottle’ for it has merely rehashed the concept of diminishing marginal utility of a product in new terms.
    An indifference curve (IC) is a graphical representation of different combinations or consumption bundles of two goods or commodities, providing equal levels of satisfaction and utility for the consumer. In other words, a consumer is considered indifferent between any two bundles indicated by a point on the curve, provided these combinations give the same utility.

    The indifference curve in economics examines demand patterns for commodity combinations, budget constraints and helps understand customer preferences. The theory applies to welfare economics and microeconomics
    , such as consumer and producer equilibrium, measurement of consumer surplus
    , theory of exchange, etc.Indifference Curve Assumptions
    The consumer is rational to maximize the satisfaction and makes a transitive or consistent choice. The consumer is expected to buy any of the two commodities in a combination. Consumers can rank a combination of commodities based on their satisfaction levels.

    2.The budget constraint is the boundary of the opportunity set—all possible combinations of consumption that someone can afford given the prices of goods and the individual’s income.
    Utility is an economic concept denoting consumers’ benefit or satisfaction from goods or services. According to economic theories on rational choice, consumers always seek to maximize their utility.

    It is important to understand what maximum utility is because it influences the price and demand of commodities and services. Utility is the extent to which an economic good or service satisfies the consumer’s needs. In other words, economic utility is the usefulness of the product or service. It is practically impossible to quantify a consumer’s utility or benefit in economics. Analysts indirectly estimate product or service utility using specific economic models.

    3. The cobweb model or cobweb theory is an economic model that explains why prices might be subject to periodic fluctuations in certain types of markets. It describes cyclical supply and demand in a market where the amount produced must be chosen before prices are observed.Cobweb theory is the idea that price fluctuation can lead to fluctuations in supply which cause a cycle of raising and falling prices. In a simple cobweb model, we assume there is an agricultural market where supply can vary due to variable factors,such as the weather.Cobweb theory has played an essential role incorporating both features as explanations for endogeneity of price and production cycles in commodity markets. Empirical testing of cobweb models explored the possibility that “short run” supply and demand elasticities could produce temporary market instability.Inadvertently” (Samuelson [1947]) Moore sets out the cobweb idea which mathematical formalization was given by Ricci, Schultz and Tinbergen.
    Spider webs are called cobwebs because the old English word for spider was coppe. Turns out that cobwebs are only produced by Theridiidae (cobweb spiders) and Linyphiidae (money spiders) – all others should be just known as spider webs..

    WEAKNESSES OF COBWEB THEORY1.It assumes that products (former) are irrational and hence base their production decisionon the previous prices without thinking of price changes but this is rather unrealisticbecause in reality farmers always think about changes in prices in the future.It concentrates attention on the important fact that the present events depend upon the past happenings It furnishes us with a technique to demonstrate the process of change over time.

  32. Avatar OGUANYA CHIDERA FAITH says:

    OGUANYA CHIDERA FAITH
    2020/242638
    ECONOMICS DEPT

    1. Indifference curve is said to make unrealistic assumptions about human behaviour. It is unable to explain risky choices undertaken by the consumer. It has been criticized for being an ‘old wine in a new bottle’ for it has merely rehashed the concept of diminishing marginal utility of a product in new terms.
    An indifference curve (IC) is a graphical representation of different combinations or consumption bundles of two goods or commodities, providing equal levels of satisfaction and utility for the consumer. In other words, a consumer is considered indifferent between any two bundles indicated by a point on the curve, provided these combinations give the same utility.

    The indifference curve in economics examines demand patterns for commodity combinations, budget constraints and helps understand customer preferences. The theory applies to welfare economics and microeconomics
    , such as consumer and producer equilibrium, measurement of consumer surplus
    , theory of exchange, etc.Indifference Curve Assumptions
    The consumer is rational to maximize the satisfaction and makes a transitive or consistent choice. The consumer is expected to buy any of the two commodities in a combination. Consumers can rank a combination of commodities based on their satisfaction levels.

    2.The budget constraint is the boundary of the opportunity set—all possible combinations of consumption that someone can afford given the prices of goods and the individual’s income.
    Utility is an economic concept denoting consumers’ benefit or satisfaction from goods or services. According to economic theories on rational choice, consumers always seek to maximize their utility.

    It is important to understand what maximum utility is because it influences the price and demand of commodities and services. Utility is the extent to which an economic good or service satisfies the consumer’s needs. In other words, economic utility is the usefulness of the product or service. It is practically impossible to quantify a consumer’s utility or benefit in economics. Analysts indirectly estimate product or service utility using specific economic models.
    3. The cobweb model or cobweb theory is an economic model that explains why prices might be subject to periodic fluctuations in certain types of markets. It describes cyclical supply and demand in a market where the amount produced must be chosen before prices are observed.Cobweb theory is the idea that price fluctuation can lead to fluctuations in supply which cause a cycle of raising and falling prices. In a simple cobweb model, we assume there is an agricultural market where supply can vary due to variable factors,such as the weather.Cobweb theory has played an essential role incorporating both features as explanations for endogeneity of price and production cycles in commodity markets. Empirical testing of cobweb models explored the possibility that “short run” supply and demand elasticities could produce temporary market instability.Inadvertently” (Samuelson [1947]) Moore sets out the cobweb idea which mathematical formalization was given by Ricci, Schultz and Tinbergen.
    Spider webs are called cobwebs because the old English word for spider was coppe. Turns out that cobwebs are only produced by Theridiidae (cobweb spiders) and Linyphiidae (money spiders) – all others should be just known as spider webs.THEORY1.ItWEAKNESSES OF COBWEB THEORY1.It assumes that products (former) are irrational and hence base their production decisionon the previous prices without thinking of price changes but this is rather unrealisticbecause in reality farmers always think about changes in prices in the future.It concentrates attention on the important fact that the present events depend upon the past happenings It furnishes us with a technique to demonstrate the process of change over time.

  33. Avatar Chukwuegbo mmesoma maryjane says:

    1.What Is an Indifference Curve?
    An indifference curve is a chart showing various combinations of two goods or commodities that leave the consumer equally well off or equally satisfied.

    Assumptions of indifference curve:

    a. Rationality: The consumer assumes to be rational. So the consumer aims to maximize utility by consuming commodities, given his income and prices of goods.

    b. Utility is ordinal.
    The utility is ordinal means that consumers can rank or order the various baskets of commodities based on each basket’s satisfaction or utility.
    C. The diminishing marginal rate of substitution.
    Indifference curve analysis is based on the axiom of diminishing marginal rate of substitution. Suppose that a consumer consumes two commodities, say X and Y. From a combination of the commodities, he gets a certain level of utility or satisfaction.

    If he decided to cut down the quantity of one commodity and keep the utility level unchanged, he should substitute some units from the other commodity.

    Criticisms
    1. Unrealistic assumptions:
    It is based on unrealistic assumptions of rationality, perfect competition, divisibility of goods and perfect knowledge of scale or preference.
    B. All Commodities are not Divisible:

    The indifference curve analysis becomes ridiculous when it is assumed that goods are divisible in small units. Commodities like watches, cars, radios, etc. are indivisible. To have 3½ watches or 2½ cars or 1½ radios in any combination is unrealistic. When indivisible goods are taken in a combination, they cannot be substituted without dividing them. Thus the consumer cannot get maximum satisfaction from the use of indivisible goods.

    No 2:

    Budget constraints are defined as when a consumer’s consumption patterns are restricted by a certain income.

    We frequently take into account effective demand when examining the demand schedule. Powerful interest individuals are really ready to spend given their constraints of pay.

    Borrowing can help with short-term budget constraints, but long-term budget constraints are determined by income like rent and wages.

    A budget constraint occurs when a consumer’s income restricts their consumption habits. To put it another way, it refers to all of the various combinations of products and services that consumers are able to purchase in light of the specific income they have and the prices they are currently paying for those products and services.

    The use of loans can help alleviate short-term budget constraints; However, in the long run, budget constraints are primarily governed by income, rent, and other more long-term factors, according to analysis.

    Financial plan imperative is the essential piece of the idea of utility expansion. The following question can summarize this idea: What inexpensive set of goods and services will make me happy? Here, the word “affordable” refers to a limited budget. In the meantime, indifference curves are linked to “happiness.”

    UTILITY MAXIMIZATION

    The idea that people and businesses should try to get the most satisfaction out of their economic decisions is known as utility maximization
    .

    For instance, while choosing how to spend a decent some, people will buy the mix of products/benefits that give the most fulfillment.

    The term “utility maximization” can also be used to describe other choices, such as the best number of hours for workers to work. Income rises as a result of more work, but leisure time decreases.

    In classical economics, the idea of maximizing utility is very important. It emerged from the utilitarian philosophers John Stuart Mill and Jeremy Bentham. Alfred Marshall and other early economists introduced utility maximization into economic theory.

    No 3:

    Cobweb theory
    Cobweb theory is the idea that price fluctuations can lead to fluctuations in supply which cause a cycle of rising and falling prices.
    In a simple cobweb model, we assume there is an agricultural market where supply can vary due to variable factors, such as the weather.
    Assumptions of Cobweb theory
    * In an agricultural market, farmers have to decide how much toproduce a year in advance – before they know what the market price will be. (supply is price inelastic in short-term)
    * A key determinant of supply will be the price from the previous year.
    * A low price will mean some farmers go out of business. Also, a low price will discourage farmers from growing that crop in the next year.
    * Demand for agricultural goods is usually price inelastic (a fall in price only causes a smaller % increase in demand)

    1. If there is a very good harvest, then supply will be greater than expected and this will cause a fall in price.
    2. However, this fall in price may cause some farmers to go out of business. Next year farmers may be put off by the low price and produce something else. The consequence is that if we have one year of low prices, next year farmers reduce the supply.
    3. If supply is reduced, then this will cause the price to rise.
    4. If farmers see high prices (andhigh profits), then next year they are inclined to increase supply because that product is more profitable.
    In theory, the market could fluctuate between high price and low price as suppliers respond to past prices.

    Cobweb theory and price divergence

    Price will diverge from the equilibrium when the supply curve is more elastic than the demand curve, (at the equilibrium point)
    If the slope of the supply curve is less than the demand curve, then the price changes could become magnified and the market more unstable.

    Cobweb theory and price convergence
    At the equilibrium point, if the demand curve is more elastic than the supply curve, we get the price volatility falling, and the price will converge on the equilibrium

    Limitations of Cobweb theory
    Rational expectations. The modelassumes farmers base next years supply purely on the previous price and assume that next year’s price will be the same as last year (adaptive expectations). However, that rarely applies in the real world. Farmers are more likely to see it as a ‘good’ year or ‘bad year and learn from price volatility.
    Price divergence is unrealistic and not empirically seen. The idea that farmers only base supply on last year’s price means, in theory, prices could increasingly diverge, but farmers would learn from this and pre-empt changes in price.
    It may not be easy or desirable to switch supply. A potato grower may concentrate on potatoes because that is his speciality. It is not easy to give up potatoes and take to aubergines.

    Other factors affecting price. There are many other factors affecting price than a farmers decision to supply. In global markets, supply fluctuations will be minimized by the role of importing from abroad. Also, demand may vary. Also, supply can vary due to weather factorsBuffer stock schemes. Governments or producers could band together to limit price volatility by buying surplus.

  34. Avatar Okeke Juliet Kelechi says:

    1. INDIFFERENCE CURVE

    An indifference curve is a curve that shows the combination of two goods that give a consumer equivalent satisfaction and utility. This curve indicates that a consumer is indifferent about the two products since he derives equal satisfaction from both. An indifference curve represents a locus of points sharing between two different goods that give a consumer the same level of utility.

    Assumptions of indifference curve are as follows:
    1. Consumer is assumed to be rational.
    2. Price of goods is constant.
    3. Consumers spend a small part of their income.
    4. Utility is ordinal.
    5. Consistency and transitivity of choice: Meaning the consumer is constant in his choice.
    6. The goods consumed are divisible and are substitutable to each other.

    Criticism of Indifference curve:
    1. The indifference curve is based on the unrealistic assumptions of perfect competition and homogeneity of goods.
    2. The indifference curve assumes goods are divisible in small units whereas in reality not all goods can be divided into smaller units e.g watches, cars e.t.c
    3. The indifference curve analysis is regarded as “old wine in new bottle” by Prof. Robertson. He further explained that the technique is similar to the utility analysis because it merely gave new names to old terms. The concept of utility is replaced by scale of preference, tendency of diminishing marginal utility is replaced by diminishing marginal rate of substitution.
    4. The indifference curve analysis fails to consider other factors concerning consumer behavior such as speculative demand, Veblen and Band-Wagon effects, effects of advertising of stocks e.t.c.
    5. The indifference curve fails to explain consumer behavior when the individual is faced with choices involving risk or uncertainty of expectations.

    2. BUDGET CONSTRAINT AND UTILITY MAXIMIZATION

    Budget constraint occurs when a consumer is limited in consumption patterns by a certain income. When looking at the demand schedule we often consider effective demand. Effective demand is what people are actually able to spend given their limitations of income.
    Temporary budget constraints can be overcome by borrowing, but in the long term budget constraints are determined by income such as rent and wages.

    Utility maximization means making economic decisions that guarantee the highest level of consumer satisfaction. An example is when a consumer decides to purchase more of “Product A” and less of “Product B” because this combination guarantees more utility.
    Consumers maximize utility by determining the combination of goods and services that guarantee maximum benefit. For example, if “Product B” promises more marginal utility than “Product A”, a rational consumer will purchase more of “Product B”.

    3. COBWEB THEORY
    Cobweb theory is a theory used to explain how small economic shocks can become amplified by the behavior of producers. The amplification is, essentially, the result of information failure, where producers base their current output on the average price they obtain in the market during the previous year. This is, to some extent, a non-rational decision, given that a supply side shock between planting and harvesting (such as an unexpectedly good or bad harvest) can lead to an unexpectedly lower or higher price. This results in either a higher output or a lower output in subsequent years, and moves the market into a long-term disequilibrium position.

    Assumptions of Cobweb Theory
    1. In an agricultural market, farmers have to decide how much to produce a year in advance- before they know what market price will be. (supply is price inelastic in short-term)
    2. A key determinant of supply will be the price from the previous year.
    3. A low price will mean some farmers go out of business. Also, a low price will discourage farmers from growing that crop in the next year.
    4. Demand for agricultural goods is usually price inelastic. (a fall in price only causes a smaller percent increase in demand)

    Limitations of Cobweb Theory
    1. Rational expectations: The model assumes farmers base next years supply purely on the previous price and assumes the next year’s price wil be the same as last year (adaptive expectations). However, that rarely applies in the real world. Farmers are more likely to see it as a ‘good’ year or ‘bad year’ and learn from price volatility.
    2. Price divergence is unrealistic and not empirically seen: The idea that farmers only base supply on last year’s price means, in theory, prices could increasingly diverge, but farmers would learn from this and pre-empt changes in price.
    3. It may not be easy or desirable to switch supply: A potato grower may concentrate on potatoes because that is his speciality. It is not easy to give up potatoes and take to aubergines.
    4. Buffer stock schemes: Governments or producers could band together to limit price volatility by buying surplus.
    5. Other factors affecting price: There are many other factors affecting price than a farmers decision to supply. In global markets, supply fluctuations will be minimized by the role of importing from abroad. Also, demand may vary and supply can very due to weather factors.

  35. Avatar ONUKA +CHIDINMA +LEKWA says:

    An indifference curve is a graphical representation of a combined products that gives similar kind of satisfaction to a consumer thereby making them indifferent.Every point on the indifference curve shows that an individual or a consumer is indifferent between the two products as it gives him the same kind of utility.
    In economics, an indifference curve is a curve that shows the combination of two goods that give a consumer equivalent satisfaction and utility.
    ASSUMPTIONS
    The consumer is rational to maximize the satisfaction and makes a transitive or consistent choice.
    The diminishing marginal rate of substitution
    Total utility of the consumer depends on the amount of the commodities consumed.
    Consistency and transitivity of choice
    CRITICISMS
    Rationality.
    The consumer assumes to be rational. So the consumer aims to maximize utility by consuming commodities, given his income and prices of goods.
    Utility is ordinal.
    The utility is ordinal means that consumers can rank or order the various baskets of commodities based on each basket’s satisfaction or utility.
    The diminishing marginal rate of substitution.
    Indifference curve analysis is based on the axiom of diminishing marginal rate of substitution. Suppose that a consumer consumes two commodities, say X and Y. From a combination of the commodities, he gets a certain level of utility or satisfaction.

    Budget constraint is the total amount of items you can afford within a current budget.
    economics, a budget constraint represents all the combinations of goods and services that a consumer may purchase given current prices within his or her given income.

    Utility maximisation refers to the concept that individuals and firms seek to get the highest satisfaction from their economic decisions.
    In microeconomics, the utility maximization problem is the problem consumers face: “How should I spend my money in order to maximize my utility?” It is a type of optimal decision problem.

    The cobweb model or cobweb theory is an economic model that explains why prices might be subject to periodic fluctuations in certain types of markets.
    The producers of agricultural goods, for instance, might decide to increase their output one year because their product commanded a very high price the previous year. This, however, might lead to overproduction and cause prices to slump that year, thus leading to losses.

  36. Avatar Mpama Onyinyechi Ada says:

    Name; Mpama Onyinyechi Ada
    Course; Eco 201
    Department; Economics
    Reg no: 2020/245072

    Answer to no (3)
    (Extensively discuss cobwebs theory)

    The cobweb model or cobweb theory is an economic model that explains why prices might be subject to periodic fluctuations in certain types of markets. It describes cyclical supply and demand in a market where the amount produced must be chosen before prices are observed. Producers’ expectations about prices are assumed to be based on observations of previous prices. Nicholas Kaldor analyzed the model in 1934, coining the term “cobweb theorem” (see Kaldor, 1938 and Pashigian, 2008), citing previous analyses in German by Henry Schultz and Umberto Ricci.
    The cobweb model can have two types of outcomes:

    If the supply curve is steeper than the demand curve, then the fluctuations decrease in magnitude with each cycle, so a plot of the prices and quantities over time would look like an inward spiral, as shown in the first diagram. This is called the stable or convergent case.
    If the demand curve is steeper than the supply curve, then the fluctuations increase in magnitude with each cycle, so that prices and quantities spiral outwards. This is called the unstable or divergent case.
    Two other possibilities are:

    Fluctuations may also maintain a constant magnitude, so a plot of the outcomes would produce a simple rectangle. This happens in the linear case if the supply and demand curves have exactly the same slope (in absolute value).
    If the supply curve is less steep than the demand curve near the point where the two curves cross, but more steep when we move sufficiently far away, then prices and quantities will spiral away from the equilibrium price but will not diverge indefinitely; instead, they may converge to a limit cycle.
    In either of the first two scenarios, the combination of the spiral and the supply and demand curves often looks like a cobweb, hence the name of the theory.

  37. Avatar Mmaduako Benedict says:

    Mmaduako Benedict
    Business Education
    2019/246562
    1.Indifference curve
    An indifference curve is a locus of all combinations of two goods which yield the same level of satisfaction (utility) to the consumers.
    Since any combination of the two goods on an indifference curve gives equal level of satisfaction, the consumer is indifferent to any combination he consumes. Thus, an indifference curve is also known as ‘equal satisfaction curve’ or ‘iso-utility curve’.
    Assumptions of indifference curve
    The indifference curve theory is based on few assumptions. These assumptions are:
    Two commodities
    It is assumed that the consumer has fixed amount of money, all of which is to be spent only on two goods. It is also assumed that prices of both the commodities are constant.
    Non satiety
    Satiety means saturation. And, indifference curve theory assumes that the consumer has not reached the point of satiety. It implies that the consumer still has the willingness to consume more of both the goods. The consumer always tends to move to a higher indifference curve seeking for higher satisfaction.
    Ordinal utility
    According to this theory, utility is a psychological phenomenon and thus it is unquantifiable. However, the theory assumes that a consumer can express utility in terms of rank. Consumer can rank his/her preferences on the basis of satisfaction yielded from each combination of goods.
    Diminishing marginal rate of substitution
    Marginal rate of substitution may be defined as the amount of a commodity that a consumer is willing to trade off for another commodity, as long as the usecond commodity provides same level of utility as the first one. And, diminishing marginal rate of substitution states that the rate by which a person substitutes X for Y diminishes more and more with each successive substitution of X for Y. As indifference curve theory is based on the concept of diminishing marginal rate of substitution, an indifference curve is convex to the origin.
    2.
    Short note on budget constraints and utility maximization
    The budget constraint is the first piece of the utility maximization framework—or how consumers get the most value out of their money—and it describes all of the combinations of goods and the budget constraint represents all of the points where the consumer is spending all of their income. Therefore, points between the budget constraint and the origin are points where the consumer is not spending all of their income (i.e. is spending less than their income) and points farther from the origin than the budget constraint are unaffordable to the consumer.

  38. Avatar Mpama Onyinyechi Ada says:

    Name; Mpama Onyinyechi Ada
    Course: Eco 201
    Department: Economics
    Reg no: 2020/245072

    Answer to no (2)
    Short note on budget constraint??

    A budget constraint is an economic term referring to the combined amount of items you can afford within the amount of income available to you. For example, if you are a sales professional with a $1,000 budget for promotional items, this sets the upper limit on items you can purchase. The cost of each item and the minimum quantity you need would determine how many you can buy within your budget.

    The same principle of budget constraint can also be applied to time. If you are a manager, your employees only have a certain number of hours in a workday, which means you need to determine how much of their time they should spend on the various things they need to accomplish. The calculation may vary from week to week as your business priorities change and your employees’ available time adjusts since some weeks include holidays or employees might take time .

    Short note on utility maximization

    Utility maximisation refers to the concept that individuals and firms seek to get the highest satisfaction from their economic decisions.
    For example, when deciding how to spend a fixed some, individuals will purchase the combination of goods/services that give the most satisfaction.
    Utility maximisation can also refer to other decisions – for example, the optimal number of hours for labour to supply their labour. Working more increases income, but reduces leisure time.

  39. Avatar Mpama Onyinyechi Ada says:

    Name: Mpama Onyinyechi Ada
    course: Eco 201
    Reg no; 2020/245072
    Department: Economics
    Answer to no (1).

    What is an Indifference Curve?
    An indifference curve is a graphical representation of a combination of two goods that offers the consumer equal satisfaction on consumption, thereby making the consumer indifferent. The consumer derives the same utility along the curve, for any combination. The concept of indifference curve was developed by British Economist Francis Y Edgeworth. It is a tool of microeconomics to demonstrate consumer preferences and the limitations of budget. Indifference curve analysis assumes that all other variables are constant and stable. The slope of the indifference curve is known are the marginal rate of substitution. The marginal rate of substitution is the rate at which the consumer is willing to give up one good for another.

    Assumptions of indifference curve
    (1) indifference curves can never cross
    (2) the farther out an indifference curve lies, the higher the utility it indicates
    (3) indifference curves always slope downwards.
    (4) indifference curves are convex.
    Among these few I mentioned there are still other assumptions but the one’s outline above are the main one’s.

    criticism of indifference curve
    1. Unrealistic assumptions:
    It is based on unrealistic assumptions of rationality, perfect competition, divisibility of goods and perfect knowledge of scale or preference.
    The purchases of a consumer arc very much affected by habits, customs and fashion. Therefore, a consumer does not act always rationally. We cannot expect a consumer to know his indifference map. Goods Visible and perfect completion is a myth.

    2. No novelty:
    Prof. D.H. Robertson remarked that the indifference curve technique is merely “An old wine in new bottle.”
    This technique is similar to the utility analysis because it merely gave new names to old terms. The concept of utility is replaced by scale of preference, tendency of diminishing marginal utility is replaced by diminishing marginal rate of substitution and cordinal numbers such as 1, 2, 3 etc., were labelled as ordinal numbers I, II, III, etcsatisfaction of different combinations becomes evident and so the different combinations on the same indifference curve do not yield equal satisfaction.
    Thus, if Armstrong argument is accepted different points on an indifference curve give different satisfaction. The indifference curve will become non-transitive.

    3. Fails to explain risky choice:
    Indifference curve analysis is criticized on the ground that it cannot explain consumer behaviour when he has to choose among alternatives involving risk or uncertainty of expectation.
    To make a choice among uncertain alternatives quantitative measurement of utility is needed to decide whether the risk is worth taking. In such situations cordinal system of utility can explain consumer bahaviour.

    4. Absurd and unrealistic combinations:
    Indifference curve analysis is based on hypothetical combinations. When we consider different combinations of two goods, then there may be some combinations that are meaningless and cannot be possible in real life.

    5. Docs not provide behaviouristic explanation of consumer behaviour:
    The indifference map is hypothetical in nature and is not based on observed market behaviour. It is subjective in nature instead of objective.
    The reason is that it does not set up functions and curves in purely objective terms. Purely objective indifference curves can be possible only if it is possible to obtain quantitative data.

  40. Avatar Abonyi Ifebuche Faith 2020/242675 says:

    Name : Abonyi Ifebuche Faith
    Reg no : 2020/242675
    Dept : Education Economics

    1. INDIFFERENCE CURVE
    Indifference curve can be defined as a curve that shows the quantity combination of two good(say good X and Y) with equal level of satisfaction. It is of great importance to note that the relationship between both goods work is negative. In other words, an increase in good X will definitely lead to a decrease in good Y and vice versa

    Assumptions of indifference curve
    1. It is assumed that consumers act rationally in order to maximize satisfaction
    2 The prices of both goods are given
    3. Consumers have perfect information about the prices of goods in the market.
    4. Consumer’s taste, habit and income remains the same throughout the analysis.
    5. The curve is negative and downward sloping
    6. It is smooth and highly indivisible.

    CRITICISMS OF INDIFFERENCE CURVE
    1. Consumers are not always rational
    2. They do not have perfect information of the market
    3.Not all goods are divisible e.g cars, gas cylinder, etc
    4. Income and Taste cannot be constant, they can change.
    5. There are many goods in the market. It can’t just be 2 goods X and Y

    2.BUDGET CONSTRAINT
    Budget constraint refers to all possible combinations of consumption that a consumer can afford given the prices of goods and services and the individual’s income. It is the total amount of items you can afford within a current budget.
    UTILITY MAXIMIZATION
    This is the desire of a rational consumer to seek to get the highest level of satisfaction from his/her economic decision(s).

    3.COBWEB’S THEORY
    Cobweb theory is the idea that price fluctuation can lead to fluctuations in supply which cause a cycle of raising and falling prices. It tries to explain why prices might be subject to periodic fluctuations in certain types of markets. It can be convergent or divergent. The convergent case occurs when the demand curve is more elastic than the supply curve, at the equilibrium point whereas the divergent case occurs when the supply curve is more elastic than the demand curve at equilibrium.

  41. Avatar ONYENEKE +AMARACHI +PRISCA says:

    The indifference curve analysis measures utility ordinally. It explains consumer behaviour in terms of his preferences or rankings for different combinations of two goods, say X and Y. An indifferent curve is drawn from the indifference schedule of the consumer. The latter shows the various combinations of the two commodities such that the consumer is indifferent to those combinations
    ASSUMPTIONS
    The consumer acts rationally so as to maximise satisfaction.
    There are two goods X and Y
    An indifference curve is smooth and continuous which means that the two goods are highly divisible and that level of satisfaction also change in a continuous manner.
    CRITICISMS
    Indifference curve analysis is criticized on the ground that it cannot explain consumer behaviour when he has to choose among alternatives involving risk or uncertainty of expectations.

    Cobweb theory is the subjective fluctuations of price in the market.
    Moore sets out the cobweb idea which mathematical formalization was given by Ricci, Schultz and Tinbergen.
    Cobweb theory has played an essential role in incorporating both features as explanations for endogenity of price and production cycles in commodity markets.

    Budget constraint is the boundary of the opportunity set all possible combinations of consumption that someone can afford given the prices of goods and services and the individuals income.
    A budget constraint occurs when a consumer is limited in consumption patterns by a certain income.
    Utility maximization is the concept that individuals and organizations seek to attain the highest level of satisfaction from their economic decisions.
    It is an example of a consumer decides to purchase more of product A and less of product B because the combination guarantees more benefit.
    In economics, utility theory governs individual decision making.

  42. Avatar Omeje favour chidinma - 2020/242624 says:

    INDIFFERENCE CURVE
    An indifference curve is a downward sloping convex line connecting the quantity of one good consumed with the amount of another good consumed. Irish-born British economist Francis Ysidro Edgeworth first proposed this two-dimensional graph, also known as the iso-utility curve.
    While each axis denotes a different form of consumer goods
    , the curve features unique combinations or consumption bundles for any two commodities in points. These combinations provide the same level of satisfaction and utility to the consumer. Since the consumer gets an equal preference for all bundles of goods, they are indifferent about any two combinations on the curve..

    The slope of the curve at any given point represents utility for any combination of two goods. When it occurs, it is known as the marginal rate of substitution (MRS). It shows the consumer’s preference for one good over another only if it is equally satisfying.
    FEATURES OF INDIFFERENCE CURVE :
    – Downward sloping
    – strictly convex slope
    – satisfactory levels directly proportional to axes level
    – Never Intercept each other
    – Never touched the X and Y axis

    Assumptions of the indifference curve
    – The consumer is rational to maximize the satisfaction and makes a transitive or consistent choice.
    – The consumer is expected to buy any of the two commodities in a combination.
    – Consumers can rank a combination of commodities based on their satisfaction levels. Usually, the combination with the higher satisfaction level is preferred.
    – The consumer behavior remains constant in the analysis.
    – The utility is expressed in terms of ordinal numbers.
    – Assumes marginal rate of substitution to diminish.

    CRITICISM OF INDIFFERENCE CURVE
    – Indifference curve is said to make unrealistic assumptions about human behaviour.
    – It is unable to explain risky choices undertaken by the consumer.
    – It has been criticized for being an ‘old wine in a new bottle’ for it has merely rehashed the concept of diminishing marginal utility of a product in new terms.
    – It is based on unrealistic expectations of rationality, perfect competition, divisibility of goods and perfect knowledge of scale or preference, completely negating the imperfections in the decision making process of the consumer.
    – It has been argued by some economists that a consumer is indifferent to close alternative combinations as he or she is not able to recognize and appreciate the difference between the two. But as the difference between the goods in the combination increase, the difference becomes more apparent and the same indifference curve will not yield satisfaction to the consumer.

    2) Budget constraints and utility maximization
    The budget constraint is like a possibilities curve: moving up or down the constraint means gaining more of one good while sacrificing the other.
    Because of the budget constraint, any bundle of goods (x1,x2) that consumers ultimately decide to consume will lie on the budget constraint line. Adhering to this constraint where M=32,p1=2,p2=4, we can see that consumers will be able to achieve 2 units of utility, and can also achieve 4 units of utility. But what is the maximum amount of utility that consumers can achieve?

    Notice an interesting property about indifference curves: the utility level of the indifference curves gets larger as we move up and to the right. Hence, the maximizing amount of utility in this budget constraint is the rightmost indifference curve that still touches the budget constraint line. In fact, it’ll only ‘touch’ (and not intersect) the budget constraint and be tangential to it.
    Notice that as the price of one good increases, the indifference curve that represents the maximum attainable utility shifts towards the left (i.e. the max utility decreases). Intuitively, this makes sense. As the price of one good increases, consumers have to make adjustments to their consumption bundles and buy less of one, or both, goods. Hence, their maximum utility will decrease.
    Let’s visualize the budget constraint in 3D where M=30,p1=3,p2=3. Here, any point along the curve in which the 2 planes intersect represents an amount of utility in which the budget constraint holds true (i.e. where we’ve spent all our income). The utility maximizing quantity is a point on this intersecting curve at which the utility level is the highest.

    COBWEB THEORY:
    The cobweb model or cobweb theory is an economic model that explains why prices might be subject to periodic fluctuations in certain types of markets. It describes cyclical supply and demand in a market where the amount produced must be chosen before prices are observed. Producers’ expectations about prices are assumed to be based on observations of previous prices. Nicholas Kaldor analyzed the model in 1934, coining the term “cobweb theorem” (see Kaldor, 1938 and Pashigian, 2008), citing previous analyses in German by Henry Schultz and Umberto Ricci.
    The cobweb model is generally based on a time lag between supply and demand decisions. Agricultural markets are a context where the cobweb model might apply, since there is a lag between planting and harvesting (Kaldor, 1934, p. 133-134 gives two agricultural examples: rubber and corn). Suppose for example that as a result of unexpectedly bad weather, farmers go to market with an unusually small crop of strawberries. This shortage, equivalent to a leftward shift in the market’s supply curve, results in high prices. If farmers expect these high price conditions to continue, then in the following year, they will raise their production of strawberries relative to other crops. Therefore, when they go to market the supply will be high, resulting in low prices. If they then expect low prices to continue, they will decrease their production of strawberries for the next year, resulting in high prices again.

    This process is illustrated by the adjacent diagrams. The equilibrium price is at the intersection of the supply and demand curves. A poor harvest in period 1 means supply falls to Q1, so that prices rise to P1. If producers plan their period 2 production under the expectation that this high price will continue, then the period 2 supply will be higher, at Q2. Prices therefore fall to P2 when they try to sell all their output. As this process repeats itself, oscillating between periods of low supply with high prices and then high supply with low prices, the price and quantity trace out a spiral. They may spiral inwards, as in the top figure, in which case the economy converges to the equilibrium where supply and demand cross; or they may spiral outwards, with the fluctuations increasing in magnitude.
    The cobweb model can have two types of outcomes:

    If the supply curve is steeper than the demand curve, then the fluctuations decrease in magnitude with each cycle, so a plot of the prices and quantities over time would look like an inward spiral, as shown in the first diagram. This is called the stable or convergent case.
    If the demand curve is steeper than the supply curve, then the fluctuations increase in magnitude with each cycle, so that prices and quantities spiral outwards. This is called the unstable or divergent case.
    Two other possibilities are:

    Fluctuations may also maintain a constant magnitude, so a plot of the outcomes would produce a simple rectangle. This happens in the linear case if the supply and demand curves have exactly the same slope (in absolute value).
    If the supply curve is less steep than the demand curve near the point where the two curves cross, but more steep when we move sufficiently far away, then prices and quantities will spiral away from the equilibrium price but will not diverge indefinitely; instead, they may converge to a limit cycle.
    In either of the first two scenarios, the combination of the spiral and the supply and demand curves often looks like a cobweb, hence the name of the theory.

  43. Ugwuoke mmesoma Joy
    2020/242343
    Business education
    200l
    1. Indifference curve is a curve showing two good that has equal satisfaction to an individual one derive from consuming a given commodity. A consumer’s preference can be represented by indifference curve. A higher indifference curve represents a higher level of satisfaction than a lower one. Therefore a consumer prefers points on a higher indifference curve to points on a lower indifference curve. Indifference curve are negatively sloped, cannot intersect and are convex to the origin. The slope of indifference curve at any point is the consumer’s marginal rate of substitution (MRS)
    Assumption of indifference curve
    It assumes that consumers act rationally to maximize satisfaction.
    It assumes two groups X and Y.
    It assumes that the information is complete.
    It assumes that the consumer’s taste, habit and income remain the same through the analysis.
    Criticism of indifference curve
    It is negative and downward sloping.
    Assumptions of the analysis are unrealistic.
    It has a weak ordering analysis.
    It doesn’t take into account the risk of the choices.
    Budget constraints shows the possible combinations of different goods the consumer can buy given his or her income and the prices of the good. Changes in income and changes in prices produce changes in the budget constraint. The slope of the budget constraint equals the relative price of the two goods.
    Utility maximization
    The objective of the consumer is to maximize his or her utility. The constraint in consuming as much as one would want and therefore in having as much utility or satisfaction as possible are the consumer’s level of income and the prices of goods to be consumed. Changes in prices and income therefore will affect the income allocation and goods combination that maximize consumer’s utility.
    Cobweb theory
    It is an economic theory that explains why prices might be subject to periodic fluctuations in certain types of markets. It describes cyclical supply and demand In a market where the amount produced must be chosen before prices are observed. It is idea that price fluctuations can lead to fluctuation in supply which cause a cycle of rising and falling. Cobweb theory is also known as cobweb model.

  44. Avatar Okeke Eucharia uchenna says:

    Okeke Eucharia uchenna
    Department of Business Education
    Vocational and Technical Education
    2020/243645

    1. Indifference curve shows a combination of two different goods (i.e goods X and y) that shows the various quantities in such a way that the goods give equal level of satisfaction.
    1i. Some Assumptions of indifference curve are:
    a. The prices of two goods are given.
    b. It involves two goods which are X and Y
    c. The customer is in a position to order all possible combinations of two goods.
    d. The indifference curve is always convex to it’s origin.
    e. An indifference curve is sloping downward i.e it is negativity inclined.
    1ii. Some criticisms of the indifference curve are:
    a. It is based on unrealistic assumption of perfect competition.
    b. All commodities are not visible.
    c. Use of two good model ( unrealistic).
    d. Combinations are not based in any principal.
    e. Limited analysis of consumers behavior.

    2. Budget Constraints and Utility Maximization:
    Budget constraint is an indifference curve in which is attained when the consumers choose to maximize their utility. This will bring in the concept of money/income which will be represented with M and prices, P1 for good X1 and P2 for good X2. Therefore, the consumer can at most spend up to M for both goods.
    M> P1x1 + P2X2..
    Meanwhile, goods will always bring non_negative marginal utility so consumers will try to consume as many goods as they can( because if they have income leftover they will use it to buy more goods. Hence in our graph we can rewrite the budget constraint as an equality instead.
    M = P1X1 + P2X2.
    The utility level of indifference curve gets larger as we move up and to the right. The budget Constraint is tagential to the indifference curve. Also, when the indifference curve shifts to the left it shows that the maximum utility decreases. Therefore, as the price of one good increases, consumers have to make adjustments to their consumption bundles and buy less of one or the both, goods.

    3. COBWEB Theory is an economic model that expound why prices fluctuations can lead to fluctuations in supply which will cause a cycle of rising and falling prices. It describes cyclical supply and demand in a market where the amount produced must be chosen before prices are observed.

  45. Avatar Onyemaechi Chiemerie justice says:

    Name: Onyemaechi Chiemerie Justice
    Reg No: 2020/248274
    Department: Business education
    Email: emmytex332@gmail.com

    1. An indifference curve is a graphical representation of a combined products that gives similar kind of satisfaction to a consumer thereby making them indifferent. Every point on the indifference curve shows that an individual or a consumer is indifferent between the two products as it gives him the same kind of utility
    Indifference curve assumptions
    • The consumer is rational to maximize the satisfaction and makes a transitive or consistent choice.
    • The consumer is expected to buy any of the two commodities in a combination.
    • Consumers can rank a combination of commodities based on their satisfaction levels. Usually, the combination with the higher satisfaction level is preferred.
    • The consumer behavior remains constant in the analysis.
    • The utility is expressed in terms of ordinal numbers.
    • Assumes marginal rate of substitution to diminish
    Indifference curve Criticism
    Fails to Explain the Observed Behaviour of the Consumer:
    Knight argues that the observed market behaviour of the consumer cannot be explained objectively. It is a mistake not to base the analysis of consumer’s demand on the cardinal utility theory. For instance, the income and substitution effects cannot be distinguished on the basis of mere observation. In fact, what we observe is the composite price effect. Similarly, the theory of complementaries and substitutes based on the principle of marginal rate of substitution cannot be discovered from the market data. Samuelson has explained the observed behaviour of the consumer in his Revealed Preference Theory.
    Indifference Curves are Non-transitive:
    One of the greatest critics of the indifference hypothesis is W.E. Armstrong who argues that the consumer is indifferent not because he has complete knowledge of the various combinations available to him but because of his inability to judge the difference between alternative combinations. He further opines that any two points on an indifference curve are the points of indifference not because they are of iso-utility but of zero-utility difference.
    It is only when utility difference is zero that the relation between any two or more points on an indifference curve is symmetrical. Armstrong’s arguments can be explained with the help of Figure 12.39 where on I1 curve points P, Q, R and S represent different combinations of the goods X and Y. The points P and Q, R and S are so drawn that the difference between each pair is imperceptible.

    Points P and Q or R and S will be of iso-utility only if utility difference between them is zero. But the consumer cannot be indifferent between P and R because the difference of total utility between P and R is perceptible. So the consumer will prefer P to R, or R to P in the reverse case. This shows that the points on an indifference curve are not transitive.”If indifference is not transitive”, observes Armstrong, “the text book diagrams with their masses of non-intersecting indifference curves do not make sense.” Thus the very notion of ‘indifference’ appears to be of doubtful validity.
    The Consumer is not Rational:
    The indifference analysis, like the utility theory, assumes that the consumer acts rationally. He is of a calculating mind who carries innumerable combinations of different commodities in his head, can substitute one for the other, compare their total utilities and make a rational choice between various combinations of goods. This is too much to expect of the consumer who has to act under various social, economic and legal constraints.
    Combinations are not based on any Principle:
    Since the combinations are made irrespective of the nature of goods, they often become absurd. How many of us buy 10 pairs of shoes and 8 pants, 6 radios and 5 watches or 4 scooters and 3 cars? Such combinations do not possess any significance for the consumer.
    Limited Analysis of Consumer’s Behaviour:
    Further, the assumption that the consumer buys more units of the same good when its price falls is unwarranted. Leaving aside the case of inferior goods, he may not like to have more units of a good because he is under the influence of “conspicuous consumption” and wants to display or to have variety. Changes in the tastes of the consumer or his indulging in speculative purchases also affects his preference for the goods. These exceptions make the indifference analysis a limited study of consumer behaviour.
    Failure to consider some other Factors concerning Consumer Behaviour:
    The indifference curve analysis does not consider speculative demand, interdependence of the preferences of consumers in the form of snob, Veblen and Bandwagon effects, the effects of advertising, of stocks, etc.

    2. budget constraint represents all the combinations of goods and services that a consumer may purchase given current prices within his or her given income. Consumer theory uses the concepts of a budget constraint and a preference map as tools to examine the parameters of consumer choices . Both concepts have a ready graphical representation in the two-good case. The consumer can only purchase as much as their income will allow, hence they are constrained by their budget. The equation of a budget constraint is where is the price of good X, and is the price of good Y, and m is income.

    Utility maximization is a strategic scheme whereby individuals and companies seek to achieve the highest level of satisfaction from their economic decisions. For example, when a company’s resources are limited, management will implement a plan of purchasing goods or services that provides the maximum benefit.
    The concept of utility maximization was developed by the utilitarian philosophers Jeremy Bentham and John Stuart Mill. It was incorporated into economics by English economist Alfred Marshall. An assumption in classical economics is that the cost of a product that a consumer is willing to pay is an approximation of the maximum utility that they receive from the purchased good.

    3. Cobweb theorem
    The cobweb theorem is an economic model used to explain how small economic shocks can become amplified by the behaviour of producers. The amplification is, essentially, the result of information failure, where producers base their current output on the average price they obtain in the market during the previous year. This is, to some extent, a non-rational decision, given that a supply side shock between planting and harvesting (such as an unexpectedly good or bad harvest) can lead to an unexpectedly lower or higher price. This results in either a higher output or a lower output in subsequent years, and moves the market into a long-term disequilibrium position.

  46. Avatar Onyema Janet Nneoma says:

    1.An indifference curve is a graph showing combination of two goods that give the consumer equal satisfaction and utility.
    Assumptions
    (1) indifference curves can never cross,
    (2) the farther out an indifference curve lies, the higher the utility it indicates,
    (3) indifference curves always slope downwards, and
    (4) indifference curves are convex.
    criticisms
    . 1. Indifference curve analysis is only possible for 2 or at best for 3 goods.
    2. It is almost impossible to practically derive indifference curves.
    3. The consumer may not always behave rationally.

    Budget constraints
    Budget constraint is the total amount of items you can afford within a current budget. Budget constraint illustrates the range of choices available within that budget.

    Utility maximization
    Utility maximization is the concept that individuals and organizations seek to attain the highest level of satisfaction from their economic decisions.

    The cobweb theory
    The cobweb model or cobweb theory is an economic model that explains why prices might be subject to periodic fluctuations in certain types of markets. It describes cyclical supply and demand in a market where the amount produced must be chosen before prices are observed.

  47. Avatar Egwim chinonso Theresa says:

    EGWIM CHINONSO THERESA
    2020/242593
    Economics department
    egwimtheresa2@gmail.com

    WHAT IS AN INDIFFERENCE CURVE?
    An indifference curve is a graph showing combination of two goods that give the consumer equal satisfaction and utility. Each point on an indifference curve indicates that a consumer is indifferent between the two and all points give him the same utility.

    Description: Graphically, the indifference curve is drawn as a downward sloping convex to the origin. The graph shows a combination of two goods that the consumer consumes.

    For example,the graph shows the indifference curve showing bundles of goods A and B. To the consumer, bundle A and B are the same as both of them give him the equal satisfaction. In other words, point A gives as much utility as point B to the individual. The consumer will be satisfied at any point along the curve assuming that other things are constant.
    A single indifference curve concerns only one level of satisfaction. But there are a number of indifference curves. The curves that are farther away from the origin represent higher levels of satisfaction as they have larger combinations of X and Y.
    An indifference map is where each indifference curve corresponds to a different indifference schedule of the consumer.

    Assumptions of Indifference Curve Analysis
    The indifference curve analysis retains some of the assumptions of the cardinal theory, rejects others and formulates its own. The assumptions of the ordinal theory are the following:

    (1) The consumer acts rationally so as to maximise satisfaction.

    (2) There are two goods X and Y.

    (3) The consumer possesses complete information about the prices of the goods in the market.

    (4) The prices of the two goods are given.

    (5) The consumer’s tastes, habits and income remain the same throughout the analysis.

    (6) He prefers more of X to less of У or more of Y to less of X.

    (7) An indifference curve is negatively inclined sloping downward.

    (8) An indifference curve is always convex to the origin.

    (9) An indifference curve is smooth and continuous which means that the two goods are highly divisible and those levels of satisfaction also change in a continuous manner.

    (10) The consumer arranges the two goods in a scale of preference which means that he has both ‘preference’ and ‘indifference’ for the goods. He is supposed to rank them in his order of preference and can state if he prefers one combination to the other or is indifferent between them.

    (11) Both preference and indifference are transitive. It means that if combination A is preferable to В, and В to C, then A is preferable to C. Similarly, if the consumer is indifferent between combinations A and B, and В and C, then he is indifferent between A and C. This is an important assumption for making consistent choices among a large number of combinations.
    (12) The consumer is in a position to order all possible combinations of the two goods.
    Criticisms
    1. Unrealistic assumptions:
    It is based on unrealistic assumptions of rationality, perfect competition, divisibility of goods and perfect knowledge of scale or preference.

    The purchases of a consumer arc very much affected by habits, customs and fashion. Therefore, a consumer does not act always rationally. We cannot expect a consumer to know his indifference map. Goods Visible and perfect completion is a myth.

    2. No novelty:
    Prof. D.H. Robertson remarked that the indifference curve technique is merely “An old wine in new bottle.”

    This technique is similar to the utility analysis because it merely gave new names to old terms. The concept of utility is replaced by scale of preference, tendency of diminishing marginal utility is replaced by diminishing marginal rate of substitution and cordinal numbers such as 1, 2, 3 etc., were labelled as ordinal numbers I, II, III, etc.
    The conditions of equilibrium in both analysis are similar. According to utility analysis the consumer is in equilibrium when:

    MUX / MUy = Px/ Py

    According to QC, equilibrium is given by:
    MRSxy= Px/ Py
    Where MRS xy = MUX / MUy

    By substituting for MUx/ MUy MRSxy, we get
    MUx/ MUy = Px / Py
    Therefore, conditions of equilibrium are similar in both the techniques.

    But this criticism is untenable. Prof. Hicks claims, “The replacement of diminishing marginal rate of substitution is not mere translation.

    It is a positive change in the theory of consumer demand.” We need not measure utility in fact to know the marginal rate of substitution. The consumer is simply asked to tell how much of if he gives to take an additional unit of X.

    3. Indifference curve is non-transitive:
    Prof. W.E. Armstrong has argued that a consumer is indifferent between close alternative combinations only because he is not able to perceive the difference between the two.

    But as the difference of combinations increases, the difference in the satisfaction of different combinations becomes evident and so the different combinations on the same indifference curve do not yield equal satisfaction.

    Thus, if Armstrong argument is accepted different points on an indifference curve give different satisfaction. The indifference curve will become non-transitive.

    4. Fails to explain risky choice:
    Indifference curve analysis is criticized on the ground that it cannot explain consumer behaviour when he has to choose among alternatives involving risk or uncertainty of expectation.

    To make a choice among uncertain alternatives quantitative measurement of utility is needed to decide whether the risk is worth taking. In such situations cordinal system of utility can explain consumer bahaviour.

    5. Absurd and unrealistic combinations:
    Indifference curve analysis is based on hypothetical combinations. When we consider different combinations of two goods, then there may be some combinations that are meaningless and cannot be possible in real life.

    6. Docs not provide behaviouristic explanation of consumer behaviour:
    The indifference map is hypothetical in nature and is not based on observed market behaviour. It is subjective in nature instead of objective.

    The reason is that it does not set up functions and curves in purely objective terms. Purely objective indifference curves can be possible only if it is possible to obtain quantitative data.

    The logical structure of indifference curve theory is such that it is difficult to quantity indifference curves. Though attempts have been made to quantity indifference curve but success is very limited.

    7. Based on weak ordering:
    Indifference curve analysis is based on the weak ordering hypothesis i.e., a consumer can be indifferent between a large number of combinations.

    But, according to Prof. Samulson, it is not possible to find many situations of indifference in real world. The weak ordering makes it subjective in nature.

    But ordinal analysis is certainly better than coordinal analysis as it is based on fewer assumptions.
    2. What is a Budget Constraint?.
    Budget constraints occur as a result of scarcity and trade-offs. Scarcity is the concept that all resources are limited, such as time and money. Because resources are scarce, people must make trade-offs (opportunity cost) to efficiently allocate their resources while prioritizing their most important needs and wants (using scale of perference). For example, say a household budget is 2,000 Naira per month. Because the money is not limitless and has a cap, the resource is scarce. Because there is only 2000 Naira per month to cover expenses like rent and food as well as other wants, the household must make trade-offs to cover their most important needs. Most would consider rent and food to be a higher priority than going to the movies, so the family might decide to not go to the movies to be able to afford their rent and food. This is also an example of a budget constraint.

    A budget constraint refers to the maximum combined items one can afford with the income generated by the individual. Based on the money available each month, an individual must allocate their funds efficiently to purchase goods and services.

    To conceptualize this in a simple way, imagine having only two items that can be purchased with the budget: Hamburgers and shoes. The budget can be spent entirely on hamburgers, entirely on shoes, or some combination of both. The quantity of either good that can be purchased is determined by the price of the good, as well as the quantity purchased, and the price of the other good.

    Utility maximisation
    Utility maximisation refers to the concept that individuals and firms seek to get the highest satisfaction from their economic decisions.

    For example, when deciding how to spend a fixed some, individuals will purchase the combination of goods/services that give the most satisfaction.

    Utility maximisation can also refer to other decisions – for example, the optimal number of hours for labour to supply their labour. Working more increases income, but reduces leisure time.

    Classical economics
    Utility maximisation is an important concept in classical economics. It developed from the utilitarian philosophers of Jeremy Bentham and John Stuart Mill. Early economists such as Alfred Marshall incorporated utility maximisation into economic theory.

    An important assumption of classical economics is that the price consumers are willing to pay is a good approximation to the utility that they get from the good. If people are willing to pay $800 for an iPhone X, then this suggests the consumer must get a utility of at least $800.

    Diminishing marginal utility
    Economists such as Carl Menger, William Stanley Jevons and Marie-Esprit-Léon Walras. And Alfred Marshall developed ideas such as diminishing marginal utility. The idea that after a certain point, extra quantities of a good lead to a decline in the marginal utility. (For example – The first car gives high utility, but the utility of a second is much lower.
    How individuals achieve utility maximisation
    How much to consume?
    A consumer will consume a good up to the point where the marginal utility is greater than or equal to the price.

    If you feel a sandwich gives you more utility than the cost of buying then you will continue to buy
    mu-mc
    In this example, the optimal consumption of units is 2. A third one gives you a utility equal to 50p – but this is less than the price.
    When choosing between different goods, the Equi-Marginal principle argues that consumers will maximise total utility from their incomes by consuming that combination of goods where:

    MUa = Pa
    —– —-
    MUb = Pb

    Another way of showing utility maximisation is through the use of indifference curves and budget lines

    Indifference curves show different combinations of goods which gave the same utility.
    A budge line shows disposable income and the maximum potential goods that can be bought
    Indifference curves further to the right are more desirable as they have bigger combinations of goods.
    Utility will be maximised at the furthest indifference curve still affordable.

    3. The cobweb model or cobweb theory is an economic model that explains why prices might be subject to periodic fluctuations in certain types of markets. It describes cyclical supply and demand in a market where the amount produced must be chosen before prices are observed. Producers’ expectations about prices are assumed to be based on observations of previous prices. Nicholas Kaldor analyzed the model in 1934, coining the term “cobweb theorem” (see Kaldor, 1938 and Pashigian, 2008), citing previous analyses in German by Henry Schultz and Umberto Ricci.

    The model
    The convergent case: each new outcome is successively closer to the intersection of supply and demand.

    The divergent case: each new outcome is successively further from the intersection of supply and demand.
    The cobweb model is generally based on a time lag between supply and demand decisions. Agricultural markets are a context where the cobweb model might apply, since there is a lag between planting and harvesting (Kaldor, 1934, gives two agricultural examples: rubber and corn). Suppose for example that as a result of unexpectedly bad weather, farmers go to market with an unusually small crop of strawberries. This shortage, equivalent to a leftward shift in the market’s supply curve, results in high prices. If farmers expect these high price conditions to continue, then in the following year, they will raise their production of strawberries relative to other crops. Therefore, when they go to market the supply will be high, resulting in low prices. If they then expect low prices to continue, they will decrease their production of strawberries for the next year, resulting in high prices again.

    This process is illustrated by the adjacent diagrams. The equilibrium price is at the intersection of the supply and demand curves. A poor harvest in period 1 means supply falls to Q1, so that prices rise to P1. If producers plan their period 2 production under the expectation that this high price will continue, then the period 2 supply will be higher, at Q2. Prices therefore fall to P2 when they try to sell all their output. As this process repeats itself, oscillating between periods of low supply with high prices and then high supply with low prices, the price and quantity trace out a spiral. They may spiral inwards, as in the top figure, in which case the economy converges to the equilibrium where supply and demand cross; or they may spiral outwards, with the fluctuations increasing in magnitude.

    The cobweb model can have two types of outcomes:

    If the supply curve is steeper than the demand curve, then the fluctuations decrease in magnitude with each cycle, so a plot of the prices and quantities over time would look like an inward spiral, as shown in the first diagram. This is called the stable or convergent case.
    If the demand curve is steeper than the supply curve, then the fluctuations increase in magnitude with each cycle, so that prices and quantities spiral outwards. This is called the unstable or divergent case.
    Two other possibilities are:

    Fluctuations may also maintain a constant magnitude, so a plot of the outcomes would produce a simple rectangle. This happens in the linear case if the supply and demand curves have exactly the same slope (in absolute value).
    If the supply curve is less steep than the demand curve near the point where the two curves cross, but more steep when we move sufficiently far away, then prices and quantities will spiral away from the equilibrium price but will not diverge indefinitely; instead, they may converge to a limit cycle.
    In either of the first two scenarios, the combination of the spiral and the supply and demand curves often looks like a cobweb, hence the name of the theory.

  48. Avatar ANI EMMANUELLA NGOZI says:

    Reg no:2020/249748
    Department:Business Education
    Course :eco 201
    1a) Indifference curve is the curve that represents all the combinations of goods that provides an equal level of utility or satisfaction.
    b)ASSUMPTIONS OF INDIFFERENCE CURVE
    -) The price of the two goods is given
    -) An indifference curve is negative inclined sloping downward
    -)The consumer taste habit and income remains the same throughout the analysis
    -)The consumer acts rationally so as to maximize satisfaction
    -)An indifference curve is always convex to the origin
    C) CRITICISMS OF INDIFFERENCE CURVE
    -) it is based on unrealistic assumption of rationality perfect, competition, division of goods or preference
    -)indifference curve is criticized on the ground that it cannot explain consumer behavior
    -)indifference curve is non transitive
    -) indifference curve considers different combination of two goods, there may be some combination that is meaningless and cannot be possible in real life
    2A)Budget constraint is an economic term referring to the combined amount of item you can afford within the amount of income available to you .
    2B)Utility maximization describes the effort of the consumer to obtain the greatest degree of utility or value from a purchases, while keeping the cost of the purchase as low as possible
    3) Cobweb theory is the idea that price fluctuations can lead to fluctuation in supply which cause a cycle of rising and falling price.cobweb theory of business cycle was propounded in 1930 independently by professor H Schultz of America,J.Tinbergen of the Netherlands and U. Riaci of Italy.But it was Prof Nicholas kaldo in 1934 that assume there is an agricultural market where supply can vary due to variable factor such as weather, he named it cobweb because of the pattern of movement of price and output resembled a cobweb.
    IT’S ASSUMPTIONS
    -) A key determine of supply will be the price from the previous year.
    -) The parameters determining the supply function having constant value over a series of period
    -)Current demand (D1) for the commodity is a function of current price (P1)
    -) A low price will make some farmers to go out of business
    -)The commodity under consideration is perishable and can be stored only for one year
    CRITICISMS OF COBWEB THEORY
    -) output not determined by price: the theory assumes that the output is determined by the price only. In reality, agricultural output in particular is determined by several other factors also such as weather, seeds, technology.
    -)This is not strictly a trade cycle theorem it’s concerned only with the farming sector. It’s says nothing in other sphere of production.
    -)Not Realistic:it is not realistic to assume that the demand and supply conditions remains unchanged over the previous and current period so that the demand and supply curves do not change .

    IMPLICATIONS OF COBWEB THEORY
    -)The cobweb model is an oversimplification of the real price determination process but it supplies new information to the market participants about market behavior.
    -) it’s significance lies in the demand, supply and price behavior of a agricultural commodities.
    -)Expectations about future conditions have an important influence on current price.
    TYPES OF COBWEB THEORIES
    Divergent cobweb model
    Continuous cobweb model
    Convergent cobweb model

  49. Avatar OkoraforChinonyeremMgbo says:

    OKORAFOR CHINONYEREM MGBO
    2020/242636
    ECONOMICS
    200LEVEL

    THE INDIFFERENT CURVE
    The indifferent curve is a graphical representation of different combinations or consumption bundles of two goods or commodities, providing equal levels of satisfaction and utility for the consumer. In other words, a consumer is considered indifferent between any two bundles indicated by a point on the curve, provided these combinations give the same utility. The indifference curve in economics examines demand patterns for commodity combinations, budget constraints and helps understand customer preferences.

    Assumptions-
    1. The consumer is rational to maximize the satisfaction and makes a transitive or consistent choice.
    2. The consumer is expected to buy any of the two commodities in a combination.
    3. Then rank a combination of commodities based on their satisfaction levels. Usually, the combination with the higher satisfaction level is preferred.
    4. The consumer behavior remains constant in the analysis. That is in terms of taste,habit and income.
    5. The expressed in terms of ordinal numbers.
    Assumes marginal rate of substitution to diminish.

    Criticism –
    (1) Old Wine in New Bottles:
    Professor Robertson does not find anything new in the indifference cure technique and regards it simply ‘the old wine in a new bottle’. It substitutes the concept of preference for utility. It replaces introspective cardinalism by introspective ordinalism. Instead of the cardinal numbers such as 1, 2, 3, etc., ordinal numbers I, II, III, etc. are used to indicate consumer preferences. It substitutes marginal utility by marginal rate of substitution and the law of diminishing marginal utility by the principle of diminishing marginal rate of substitution.
    (2) Away from Reality:
    With regard to the assertion that the indifference curve technique is superior to the cardinal utility analysis because it is based on fewer assumptions, Prof. Robertson observes: “The fact that the indifference hypothesis, the more complicated of the two psychologically, happens to be more economical logically, affords no guarantee that it is nearer to the truth.” He further asks, can we ignore four- feeted animals on the ground that only two feet are needed for walking?
    (3) Midway House:
    Indifference curves are hypothetical because they are not subject to direct measurements. Although consumer choices are grouped in combinations on the ordinal scale, no operational method has been devised so far to measure the exact shape of an indifference curve. This stems from the fact that ‘the peculiar logical structure of the theory has low empiric content.’ The failure of Hicks to present a scientific approach to the consumer’s behaviour led Schumpeter to characterize the indifference analysis as a ‘midway house;’. He remarked: “From a practical standpoint we are not much better off when drawing purely imaginary indifference curves than we are when speaking of purely imaginary utility functions.”
    (4) Fails to Explain the Observed Behaviour of the Consumer:
    Knight argues that the observed market behaviour of the consumer cannot be explained objectively. It is a mistake not to base the analysis of consumer’s demand on the cardinal utility theory. For instance, the income and substitution effects cannot be distinguished on the basis of mere observation. In fact, what we observe is the composite price effect. Similarly, the theory of complementaries and substitutes based on the principle of marginal rate of substitution cannot be discovered from the market data. Samuelson has explained the observed behaviour of the consumer in his Revealed Preference Theory.
    (5) The Consumer is not Rational:
    The indifference analysis, like the utility theory, assumes that the consumer acts rationally. He is of a calculating mind who carries innumerable combinations of different commodities in his head, can substitute one for the other, compare their total utilities and make a rational choice between various combinations of goods. This is too much to expect of the consumer who has to act under various social, economic and legal constraints.
    (6) Combinations are not based on any Principle:
    Since the combinations are made irrespective of the nature of goods, they often become absurd. How many of us buy 10 pairs of shoes and 8 pants, 6 radios and 5 watches or 4 scooters and 3 cars? Such combinations do not possess any significance for the consumer.
    (7) Limited Analysis of Consumer’s Behaviour:
    Further, the assumption that the consumer buys more units of the same good when its price falls is unwarranted. Leaving aside the case of inferior goods, he may not like to have more units of a good because he is under the influence of “conspicuous consumption” and wants to display or to have variety. Changes in the tastes of the consumer or his indulging in speculative purchases also affects his preference for the goods. These exceptions make the indifference analysis a limited study of consumer behaviour.
    (8) Failure to consider some other Factors concerning Consumer Behaviour:
    The indifference curve analysis does not consider speculative demand, interdependence of the preferences of consumers in the form of snob, Veblen and Bandwagon effects, the effects of advertising, of stocks, etc.
    (9) Two-Goods Model Unrealistic:
    Again, the two-goods model on which the indifference analysis is based makes the theory unrealistic because a consumer buys not two but a large number of commodities to satisfy his innumerable wants. But the difficulty is that in the case of more than three goods geometry fails and economists will have to depend upon complicated mathematical solutions for analysing the problem of consumer behaviour.

    BUDGET CONSTRAINT
    A budget constraint is an economic term referring to the combined amount of items you can afford within the amount of income available to you.
    For example, if you are a sales professional with a ¥2,000 budget for promotional items, this sets the upper limit on items you can purchase. The cost of each item and the minimum quantity you need would determine how many you can buy within your budget.
    The same principle of budget constraint can also be applied to time. If you are a manager, your employees only have a certain number of hours in a workday, which means you need to determine how much of their time they should spend on the various things they need to accomplish. The calculation may vary from week to week as your business priorities change and your employees’ available time adjusts since some weeks include holidays or employees might take time off.
    Formula: (x1×y1)+(x2×y2)=m
    where,x1 is the cost of the first item, x2 is the cost of the second item and m is the amount of money available. y1 and y2 represent the quantity of each item you are purchasing. You could express this equation verbally by saying that the cost of the total number of X items added to the cost of the total number of Y items must equal the amount of money or income you have available.

    UTILITY MAXIMIZATION
    Utility maximization is a strategic scheme whereby individuals and companies seek to achieve the highest level of satisfaction from their economic decisions.
    For example, when a company’s resources are limited, management will implement a plan of purchasing goods or services that provides the maximum benefit.
    The concept of utility maximization was developed by the utilitarian philosophers Jeremy Bentham and John Stuart Mill. It was incorporated into economics by English economist Alfred Marshall. An assumption in classical economics is that the cost of a product that a consumer is willing to pay is an approximation of the maximum utility that they receive from the purchased good.

    COBWEB THEORY
    Cobweb theory is the idea that price fluctuations can lead to fluctuations in supply which cause a cycle of rising and falling prices.
    In a simple cobweb model, we assume there is an agricultural market where supply can vary due to variable factors, such as the weather.

    ASSUMPTIONS OF COBWEB THEORY
    —In an agricultural market, farmers have to decide how much to produce a year in advance – before they know what the market price will be. (supply is price inelastic in short-term)
    —A key determinant of supply will be the price from the previous year.
    —A low price will mean some farmers go out of business. Also, a low price will discourage farmers from growing that crop in the next year.
    —Demand for agricultural goods is usually price inelastic (a fall in price only causes a smaller % increase in demand)
    1. if there is a very good harvest, then supply will be greater than expected and this will cause a fall in price.
    2. However, this fall in price may cause some farmers to go out of business. Next year farmers may be put off by the low price and produce something else. The consequence is that if we have one year of low prices, next year farmers reduce the supply.
    3. If supply is reduced, then this will cause the price to rise.
    4. If farmers see high prices (and high profits), then next year they are inclined to increase supply because that product is more profitable.

    In theory, the market could fluctuate between high price and low price as suppliers respond to past prices.

    LIMITATIONS OF COBWEB THEORY
    RATIONAL EXPECTATIONS- The model assumes farmers base next years supply purely on the previous price and assume that next year’s price will be the same as last year (adaptive expectations). However, that rarely applies in the real world. Farmers are more likely to see it as a ‘good’ year or ‘bad year and learn from price volatility.
    PRICE DIVERGENCE IS UNREALISTIC AND NOT EMPIRICALLY SEEN- The idea that farmers only base supply on last year’s price means, in theory, prices could increasingly diverge, but farmers would learn from this and pre-empt changes in price.
    IT MAY NOT BE EASY OR DESIRABLE TO SWITCH SUPPLY- A potato grower may concentrate on potatoes because that is his speciality. It is not easy to give up potatoes and take to aubergines.
    OTHER FACTORS AFFECTING PRICE- There are many other factors affecting price than a farmers decision to supply. In global markets, supply fluctuations will be minimized by the role of importing from abroad. Also, demand may vary. Also, supply can vary due to weather factors.
    BUFFER STOCK SCHEMES- Governments or producers could band together to limit price volatility by buying surplus.

  50. Avatar Okorafor Chinonyerem Mgbo says:

    OKORAFOR CHINONYEREM MGBO
    2020/242636
    ECONOMICS
    200LEVEL

    THE INDIFFERENT CURVE
    The indifferent curve is a graphical representation of different combinations or consumption bundles of two goods or commodities, providing equal levels of satisfaction and utility for the consumer. In other words, a consumer is considered indifferent between any two bundles indicated by a point on the curve, provided these combinations give the same utility. The indifference curve in economics examines demand patterns for commodity combinations, budget constraints and helps understand customer preferences.

    Assumptions-
    1. The consumer is rational to maximize the satisfaction and makes a transitive or consistent choice.
    2. The consumer is expected to buy any of the two commodities in a combination.
    3. Then rank a combination of commodities based on their satisfaction levels. Usually, the combination with the higher satisfaction level is preferred.
    4. The consumer behavior remains constant in the analysis. That is in terms of taste,habit and income.
    5. The expressed in terms of ordinal numbers.
    Assumes marginal rate of substitution to diminish.

    Criticism –
    (1) Old Wine in New Bottles:
    Professor Robertson does not find anything new in the indifference cure technique and regards it simply ‘the old wine in a new bottle’. It substitutes the concept of preference for utility. It replaces introspective cardinalism by introspective ordinalism. Instead of the cardinal numbers such as 1, 2, 3, etc., ordinal numbers I, II, III, etc. are used to indicate consumer preferences. It substitutes marginal utility by marginal rate of substitution and the law of diminishing marginal utility by the principle of diminishing marginal rate of substitution.
    (2) Away from Reality:
    With regard to the assertion that the indifference curve technique is superior to the cardinal utility analysis because it is based on fewer assumptions, Prof. Robertson observes: “The fact that the indifference hypothesis, the more complicated of the two psychologically, happens to be more economical logically, affords no guarantee that it is nearer to the truth.” He further asks, can we ignore four- feeted animals on the ground that only two feet are needed for walking?
    (3) Midway House:
    Indifference curves are hypothetical because they are not subject to direct measurements. Although consumer choices are grouped in combinations on the ordinal scale, no operational method has been devised so far to measure the exact shape of an indifference curve. This stems from the fact that ‘the peculiar logical structure of the theory has low empiric content.’ The failure of Hicks to present a scientific approach to the consumer’s behaviour led Schumpeter to characterize the indifference analysis as a ‘midway house;’. He remarked: “From a practical standpoint we are not much better off when drawing purely imaginary indifference curves than we are when speaking of purely imaginary utility functions.”
    (4) Fails to Explain the Observed Behaviour of the Consumer:
    Knight argues that the observed market behaviour of the consumer cannot be explained objectively. It is a mistake not to base the analysis of consumer’s demand on the cardinal utility theory. For instance, the income and substitution effects cannot be distinguished on the basis of mere observation. In fact, what we observe is the composite price effect. Similarly, the theory of complementaries and substitutes based on the principle of marginal rate of substitution cannot be discovered from the market data. Samuelson has explained the observed behaviour of the consumer in his Revealed Preference Theory.
    (5) The Consumer is not Rational:
    The indifference analysis, like the utility theory, assumes that the consumer acts rationally. He is of a calculating mind who carries innumerable combinations of different commodities in his head, can substitute one for the other, compare their total utilities and make a rational choice between various combinations of goods. This is too much to expect of the consumer who has to act under various social, economic and legal constraints.
    (6) Combinations are not based on any Principle:
    Since the combinations are made irrespective of the nature of goods, they often become absurd. How many of us buy 10 pairs of shoes and 8 pants, 6 radios and 5 watches or 4 scooters and 3 cars? Such combinations do not possess any significance for the consumer.
    (7) Limited Analysis of Consumer’s Behaviour:
    Further, the assumption that the consumer buys more units of the same good when its price falls is unwarranted. Leaving aside the case of inferior goods, he may not like to have more units of a good because he is under the influence of “conspicuous consumption” and wants to display or to have variety. Changes in the tastes of the consumer or his indulging in speculative purchases also affects his preference for the goods. These exceptions make the indifference analysis a limited study of consumer behaviour.
    (8) Failure to consider some other Factors concerning Consumer Behaviour:
    The indifference curve analysis does not consider speculative demand, interdependence of the preferences of consumers in the form of snob, Veblen and Bandwagon effects, the effects of advertising, of stocks, etc.
    (9) Two-Goods Model Unrealistic:
    Again, the two-goods model on which the indifference analysis is based makes the theory unrealistic because a consumer buys not two but a large number of commodities to satisfy his innumerable wants. But the difficulty is that in the case of more than three goods geometry fails and economists will have to depend upon complicated mathematical solutions for analysing the problem of consumer behaviour.

    BUDGET CONSTRAINT
    A budget constraint is an economic term referring to the combined amount of items you can afford within the amount of income available to you.
    For example, if you are a sales professional with a ¥2,000 budget for promotional items, this sets the upper limit on items you can purchase. The cost of each item and the minimum quantity you need would determine how many you can buy within your budget.
    The same principle of budget constraint can also be applied to time. If you are a manager, your employees only have a certain number of hours in a workday, which means you need to determine how much of their time they should spend on the various things they need to accomplish. The calculation may vary from week to week as your business priorities change and your employees’ available time adjusts since some weeks include holidays or employees might take time off.
    Formula: (x1×y1)+(x2×y2)=m
    where,x1 is the cost of the first item, x2 is the cost of the second item and m is the amount of money available. y1 and y2 represent the quantity of each item you are purchasing. You could express this equation verbally by saying that the cost of the total number of X items added to the cost of the total number of Y items must equal the amount of money or income you have available.

    UTILITY MAXIMIZATION
    Utility maximization is a strategic scheme whereby individuals and companies seek to achieve the highest level of satisfaction from their economic decisions.
    For example, when a company’s resources are limited, management will implement a plan of purchasing goods or services that provides the maximum benefit.
    The concept of utility maximization was developed by the utilitarian philosophers Jeremy Bentham and John Stuart Mill. It was incorporated into economics by English economist Alfred Marshall. An assumption in classical economics is that the cost of a product that a consumer is willing to pay is an approximation of the maximum utility that they receive from the purchased good.

    COBWEB THEORY
    Cobweb theory is the idea that price fluctuations can lead to fluctuations in supply which cause a cycle of rising and falling prices.
    In a simple cobweb model, we assume there is an agricultural market where supply can vary due to variable factors, such as the weather.

    ASSUMPTIONS OF COBWEB THEORY
    —In an agricultural market, farmers have to decide how much to produce a year in advance – before they know what the market price will be. (supply is price inelastic in short-term)
    —A key determinant of supply will be the price from the previous year.
    —A low price will mean some farmers go out of business. Also, a low price will discourage farmers from growing that crop in the next year.
    —Demand for agricultural goods is usually price inelastic (a fall in price only causes a smaller % increase in demand)
    1. if there is a very good harvest, then supply will be greater than expected and this will cause a fall in price.
    2. However, this fall in price may cause some farmers to go out of business. Next year farmers may be put off by the low price and produce something else. The consequence is that if we have one year of low prices, next year farmers reduce the supply.
    3. If supply is reduced, then this will cause the price to rise.
    4. If farmers see high prices (and high profits), then next year they are inclined to increase supply because that product is more profitable.

    In theory, the market could fluctuate between high price and low price as suppliers respond to past prices.

    LIMITATIONS OF COBWEB THEORY
    RATIONAL EXPECTATIONS- The model assumes farmers base next years supply purely on the previous price and assume that next year’s price will be the same as last year (adaptive expectations). However, that rarely applies in the real world. Farmers are more likely to see it as a ‘good’ year or ‘bad year and learn from price volatility.
    PRICE DIVERGENCE IS UNREALISTIC AND NOT EMPIRICALLY SEEN- The idea that farmers only base supply on last year’s price means, in theory, prices could increasingly diverge, but farmers would learn from this and pre-empt changes in price.
    IT MAY NOT BE EASY OR DESIRABLE TO SWITCH SUPPLY- A potato grower may concentrate on potatoes because that is his speciality. It is not easy to give up potatoes and take to aubergines.
    OTHER FACTORS AFFECTING PRICE- There are many other factors affecting price than a farmers decision to supply. In global markets, supply fluctuations will be minimized by the role of importing from abroad. Also, demand may vary. Also, supply can vary due to weather factors.
    BUFFER STOCK SCHEMES- Governments or producers could band together to limit price volatility by buying surplus.

  51. Avatar Igbokwe Gloria Somtoochukwu says:

    Igbokwe Gloria Somtoochukwu
    Economics
    2020/245316

    1.An indifference curve shows a combination of two goods in various quantities that provides equal satisfaction (utility) to an individual. It is used in economics to describe the point where individuals have no particular preference for either one good or another based on their relative quantities.
    ASSUMPTIONS:(a)The consumer is rational to maximize the satisfaction and makes a transitive or consistent choice. There are two goods x and y.The price of the two goods are given. The curve is always convex to the origin.
    CRITICISM: Old wine in new bottle: prof Robertson didn’t see anything new in the indifference curve technique, so he called it a old wine in new bottle.
    Away from reality and are non- transitive, the consumer is not rational.

    2.Utility maximization is the concept that individuals and organizations seek to attain the highest level of satisfaction from their economic decisions. Utility function measures the intensity to which an individual’s fulfillment is met.
    Budget constraint is the total amount of items you can afford within a current budget. Budget constraint illustrates the range of choices available within that budget. Budget constraint is the boundary of the opportunity set—all possible combinations of consumption that someone can afford given the prices of goods and the individual’s income. Opportunity cost measures cost in terms of what must be given up in exchange.

    3. Cobweb model or cobweb theory is an economic model that explains why prices might be subject to periodic fluctuations in certain types of markets. It describes cyclical supply and demand in a market where the amount produced must be chosen before prices are observed.Cobweb theory is the idea that price fluctuation can lead to fluctuations in supply which cause a cycle of raising and falling prices. In a simple cobweb model, we assume there is an agricultural market where supply can vary due to variable factors,such as the weather.Cobweb theory has played an essential role incorporating both features as explanations for endogeneity of price and production cycles in commodity markets. Empirical testing of cobweb models explored the possibility ‘short run’ supply and demand elasticities could produce temporary market instability.

  52. Avatar Ani emmanuella ngozi says:

    Reg no:2020/249748
    Department:Business Education
    Course :eco 201
    1a) Indifference curve is the curve that represents all the combinations of goods that provides an equal level of utility or satisfaction.
    b)ASSUMPTIONS OF INDIFFERENCE CURVE
    -) The price of the two goods is given
    -) An indifference curve is negative inclined sloping downward
    -)The consumer taste habit and income remains the same throughout the analysis
    -)The consumer acts rationally so as to maximize satisfaction
    -)An indifference curve is always convex to the origin
    C) CRITICISMS OF INDIFFERENCE CURVE
    -) it is based on unrealistic assumption of rationality perfect, competition, division of goods or preference
    -)indifference curve is criticized on the ground that it cannot explain consumer behavior
    -)indifference curve is non transitive
    -) indifference curve considers different combination of two goods, there may be some combination that is meaningless and cannot be possible in real life
    2A)Budget constraint is an economic term referring to the combined amount of item you can afford within the amount of income available to you .
    2B)Utility maximization describes the effort of the consumer to obtain the greatest degree of utility or value from a purchases, while keeping the cost of the purchase as low as possible
    3) Cobweb theory is the idea that price fluctuations can lead to fluctuation in supply which cause a cycle of rising and falling price.cobweb theory of business cycle was propounded in 1930 independently by professor H Schultz of America,J.Tinbergen of the Netherlands and U. Riaci of Italy.But it was Prof Nicholas kaldo in 1934 that assume there is an agricultural market where supply can vary due to variable factor such as weather, he named it cobweb because of the pattern of movement of price and output resembled a cobweb.
    IT’S ASSUMPTIONS
    -) A key determine of supply will be the price from the previous year.
    -) The parameters determining the supply function having constant value over a series of period
    -)Current demand (D1) for the commodity is a function of current price (P1)
    -) A low price will make some farmers to go out of business
    -)The commodity under consideration is perishable and can be stored only for one year
    CRITICISMS OF COBWEB THEORY
    -) output not determined by price: the theory assumes that the output is determined by the price only. In reality, agricultural output in particular is determined by several other factors also such as weather, seeds, technology.
    -)This is not strictly a trade cycle theorem it’s concerned only with the farming sector. It’s says nothing in other sphere of production.
    -)Not Realistic:it is not realistic to assume that the demand and supply conditions remains unchanged over the previous and current period so that the demand and supply curves do not change .

    IMPLICATIONS OF COBWEB THEORY
    -)The cobweb model is an oversimplification of the real price determination process but it supplies new information to the market participants about market behavior.
    -) it’s significance lies in the demand, supply and price behavior of a agricultural commodities.
    -)Expectations about future conditions have an important influence on current price.
    TYPES OF COBWEB THEORIES
    Divergent cobweb model
    Continuous cobweb model
    Convergent cobweb model

  53. Avatar Ozonwoye Adaeze MaryAnn says:

    Ozonwoye Adaeze Maryann
    2020/242617
    adaeze.ozonwoye.242617.@unn.edu.ng

    1). INDIFFERENCE CURVE:
    An indifference curve is a curve that shows the combination of two goods, say X and Y, in various quantities that equal satisfaction to an individual. Therefore an indifference curve shows a set of consumption bundles about which the individual is indifferent. The indifference curve is negatively sloped.

    In a situation where there is more than one indifference curve, the farther the indifference curve is away from the origin, the higher the level of satisfaction gotten from the combination of the two goods in the study. The indifference curve has the following properties:
    The indifference curve is downward-sloping.
    The slope of the indifference curve is convex.
    Curves plotted higher and farther to the right correspond with higher levels of utility.
    Various indifference curves can never cross or overlap.
    ASSUMPTIONS OF THE INDIFFERENCE CURVE
    The following assumptions are made in the indifference curve:
    i. There are two goods: X and Y.
    ii. The consumer is rational.
    iii. There is perfect competition.
    iv. It is assumed that goods X and Y are homogenous and divisible.
    v. The prices of goods X and Y are given.
    vi. The consumer’s taste, habits and money income is constant throughout the analysis.
    vii. The consumer arranges his two goods on a scale of preference, therefore meaning he has both preference and indifference for the goods.
    viii. Both preference and indifference are transitive.
    ix. The indifference curve is convex to the origin.
    The indifference curve is negatively inclined and slopes downward.
    CRITICISMS OF THE INDIFFERENCE CURVE
    i. There is no perfect market.
    ii. Consumer income is not constant.
    iii. Not all goods are divisible
    iv. There are more than two goods in the market.

    2a). BUDGET CONSTRAINT
    Everyone can’t afford to own everything he or she wants. Each of us has a budget that limits the extent of our consumption and Economists call this limit a budget constraint. So, therefore, Budget constraint is the set of all the bundles a consumer can afford given that consumer’s income. The budget constraint is governed by income on the one hand, how much money a consumer has available to spend on consumption, and the prices of the goods the consumer purchases on the other.
    The formula for budget constraint is:
    P1× X1 + P2 × X2 = M
    where;
    X1 represents good 1 that the consumer wants to buy.
    X2 represents goods 2 which stands for every other goods that the consumer wants to buy aside from good 1.
    P1 represents the price of good 1.
    P2 represents the price of good 2.
    M represents the consumer money income or budget line.

    2b). UTILITY MAXIMIZATION
    Utility maximization is also known as consumer equilibrium. It is the concept that individuals and organizations seek to attain the highest level of satisfaction from their economic decisions.
    Utility is maximized when total outlays equal the budget available and when the ratios of marginal utility to price are equal for all goods and services a consumer consumes. Therefore can also be seen as a point the marginal utility of a commodity equates the price of that commodity.
    MU=P
    At this point marginal utility is equal to zero, therefore;
    MU=P=0

    3). COBWEB THEORY
    The cobweb model or cobweb theory is an economic model that explains why prices might be subject to periodic fluctuations in certain types of markets. Therefore, the Cobweb theory explains the fact that changes in the price lead to fluctuation in supply and further cause a cycle of rising and falling price.

    ASSUMPTIONS OF COBWEB THEORY
    The theory is based on three assumptions
    There is perfect competition in which each producer assumes that present prices will continue and that his own production plans will not affect the market,
    i. Price is completely a function of the preceding period’s supply.
    ii. The commodity concerned is perishable.

    LIMITATIONS TO COBWEB THEORY
    I. Rational expectations: The model assumes farmers base next year’s supply purely on the previous price and assume that next year’s price will be the same as last year (adaptive expectations). However, that rarely applies in the real world. Farmers are more likely to see it as a ‘good’ year or a ‘bad year and learn from price volatility.

    II. Price divergence is unrealistic and not empirically seen: The idea that farmers only base supply on last year’s price means, in theory, prices could increasingly diverge, but farmers would learn from this and pre-empt changes in price. It may not be easy or desirable to switch supply: A potato grower may concentrate on potatoes because that is his speciality. It is not easy to give up potatoes and take to aubergines.

    III. Other factors affecting price: There are many other factors affecting price than a farmer’s decision to supply. In global markets, supply fluctuations will be minimized by the role of importing from abroad. Also, demand may vary. Also, supply can vary due to weather factors.

    IV. Buffer stock schemes: Governments or producers could band together to limit price volatility by buying surplus.

    CRITICS OF THE COBWEB THEORY
    i. Price divergence is unrealistic and not empirically seen.
    ii. producers suffer aggregate losses over the price cycle when output is determined by the long-run supply curve.

    TYPES OF COBWEB THEORY
    1. CONTINUOUS COBWEB: This is where the fluctuations in price and output continue repeating about equilibrium at same level.

    2. CONVERGENT COBWEB: If the supply curve is steeper than the demand curve, then the fluctuations decrease in magnitude with each cycle, so a plot of the prices and quantities over time would look like an inward spiral. This is called the stable or convergent case.

    3. DIVERGENT COBWEB: If the slope of the supply curve is less than the absolute value of the slope of the demand curve, then the fluctuations increase in magnitude with each cycle, so that prices and quantities spiral outwards, this is called the unstable or divergent case. So in the case of diverging Cobweb the amplitude of the fluctuation in price and output increases with the passage of time.

    IMPORTANCE OF COBWEB THEORY
    i. The cobweb theory helps us to understand how small economic shocks can become amplified by the behaviour of producers.
    ii. It concentrates our attention on the important fact that the present events depend upon the past happenings
    iii. It furnishes us with a technique to demonstrate the process of change over time.

  54. Avatar Ngene Christian Chiemerie says:

    1. Briefly discuss the indifference curve(including its assumptions and criticisms)

    An indifference curve is a curve showing the the level of satisfaction that a consumer drive from the combination of two goods.
    Some of the assumptions of an indifference curve is that
    1. There must be two goods X and Y
    2. The consumer is rational
    3. The consumer has perfect knowledge of the prices of these goods in the market.
    4. The price of these goods are given.
    5. The combination of good X and Y are inversely related making the indifference curve to be downward sloping
    6. The goods in question must be divisible to ensure a smooth flow of the curve.
    7. The consumers tests and preferences are constant throughout the analysis.
    8. The indifference curve is always Convex to the origin.
    9. The two goods are arranged in a scale of preference showing the consumer has both preference and indifference for the goods.
    10. The indifference and preference are transitive showing that combination A is preferred to combination B. B is preferred to C. Then A is preferred to C.
    11. The consumer either prefer more of X to less of Y or more of Y to less of X.
    12. The consumer is in the position to order the possible combination of X and Y.

    Some of the criticism of the indifference curve
    1. Old wine in new bottle:
    According to Prof. Robertson the indifference curve do the utility analysis, but only gave new names to the old concepts. Therefore it is just an “old wine in a new bottle”.
    2. Indifference curve are non-transitive :
    According to Armstrong W.E a consumer is indifferent about the combination not because he/she has perfect knowledge of the various combination available to him/her but because of his/her inability to judge the difference between the alternative combinations.
    3. The consumer is not rational:
    A consumer is said to be rational when he can calculate and compare between combinations and can substitute for a better one. This is rather too much to expect from someone who acts under various social, mental, economic and legal constraints.
    4. It also failed to explain the consumer behavior when faced with risk and uncertainty.
    5. It is also criticized for the perfect competition and homogeneity of goods assumptions. Because in real life we cannot see such.

    2) Write short note on Budget constraint and utility maximization.
    Budget Constraints:
    Given the income of a consumer, the inability to buy all he wants given his income is simply a budget constraint.
    For instance, a student is given 20,000 Naira to feed for a month in the school. Suppose he wants to be having his breakfast and lunch in UNN Chitis costing him 3,000 Naira a day throughout the month. He is Constrained, by his Budget of 20,000 Naira, to do so everyday or even at all.

    Utility Maximization:
    Utility maximization is the attainment of the best possible total utility given his income and price of goods and services in the market.
    For utility to be maximized the marginal utility must be equal to price equal to zero.

    3) Extensively discuss the Cobweb theory.

    The cobweb theory is an economic model that tries to explain why prices changes or fluctuate in a certain type of market. It was analyzed and was coined by an Hungarian Economist Nicolas Koldor
    It describes a periodic supply and a periodic demand in the market in which the quantity to be produced are considered first before the price is considered. That is, the inability of the producer to instantly respond to changes in price. There is always a time gap before the producer meet up with the changing price. This time gap is called the supply lag, this is often times seen in agricultural market.
    It is usually caused by the producer’s faulty expectations about the future price as a result of the previous price.
    If for instance a producer of sugarcane experienced an increase in price or demand of his sugercane the previous year and then decides to increase the production of the sugercane this year, this will result to a fall in the price of the sugercane because of the increase in supply, and here the producer can not instantly adjust to the change in price because of the supply lag.

  55. Avatar ADUAKA MARYCYNTHIA NECHE says:

    Àn indifference curve is a graphical representation of different combination bundles off to goods or commodities producing equal levels of satisfaction and utility for the consumerative indifference curve is downward sloping cónvex line connecting the quantity consumed with the amount óf another good consumed.
    INDIFFERENCE CURVE ASSUMPTIONS
    1: The consumer is rational to maximize the satisfaction a transitive or consistent choice.
    2: The consumer is expected to buy any of the two commodities in a combination.
    3: Consumers can rank a combination of commodities based on the satisfaction levels.
    4: The consumer behavior remains constant in analysis.

    CRITICISM
    1: indifference curve is said to make unrealistic assumptions about human behavior. It is unable to explain by the consumer.
    2: the indifference curve analysis becomes ridiculous when it is assumed that goods are divisible in small units.

    (2) BUDGET CONSTRAINTS
    In economics ɓuɗget constraint represent all the combinations of goods and services that a consumer may purchase given current prices within his or her given income.
    Consumer theory uses the concepts of a budget constraints and a preference map as tools to examine the parameters of consumer choices. The equation of a budget constraints is P× X + Py Ƴ=m where Px is price of good x and Pƴ is the price of good X anɗ m is income.

    UTILITY
    Utility is the satisfaction a consumer deriveɗ from consuming a particular gooɗ. Economics theories based on rational choice usually assume that consumers will strive to maximize their utility. The economic utility of a good or service is important to understand because it directly influences the demand and therefore price of good or service.

    TYPES Of UTILITY

    Form
    Time
    Place
    Possession.

  56. Avatar Iheanacho Divine Rejoice 2020/248951 says:

    NAME; iheanacho Divine Rejoice
    REG NUMBER; 2020/248951
    DEPARTMENT; ECONOMICS
    THE INDIFFERENT CURVE
    1) The Indifference curve is a curve that connects points on a graph representing different quantities of two goods, points between which a consumer is indifferent. That is, any combinations of two products indicated by the curve will provide the consumer with equal levels of utility, and the consumer has no preference for one combination or bundle of goods over a different combination on the same curve. One can also refer to each point on the indifference curve as rendering the same level of utility (satisfaction) for the consumer. In other words, an indifference curve is the locus of various points showing different combinations of two goods providing equal utility to the consumer. Utility is then a device to represent preferences rather than something from which preferences come.
    The main use of indifference curves is in the representation of potentially observable demand patterns for individual consumers over commodity bundles.The indifference curve analysis measures utility ordinally. It explains consumer behaviour in terms of his preferences or rankings for different combinations of two goods, say X and Y. An indifferent curve is drawn from the indifference schedule of the consumer.
    THE INDIFFERENT CURVE ASSUMPTION
    The consumer is rational to maximize the satisfaction and makes a transitive or consistent choice.
    The consumer is expected to buy any of the two commodities in a combination.
    Consumers can rank a combination of commodities based on their satisfaction levels. Usually, the combination with the higher satisfaction level is preferred.
    The consumer behavior remains constant in the analysis.
    The utility is expressed in terms of ordinal numbers.
    CRITICISM OF THE INDIFFERENT CURVE
    1) They are a lot of good in the Market
    2) The customer behavior can not be constant
    3) Not everyone knows the market
    4. Fails to explain risky choice:
    Indifference curve analysis is criticized on the ground that it cannot explain consumer behaviour when he has to choose among alternatives involving risk or uncertainty of expectation. To make a choice among uncertain alternatives quantitative measurement of utility is needed to decide whether the risk is worth taking. In such situations cordinal system of utility can explain consumer bahaviour.
    5. Absurd and unrealistic combinations:
    Indifference curve analysis is based on hypothetical combinations. When we consider different combinations of two goods, then there may be some combinations that are meaningless and cannot be possible in real life.
    6. Does not provide behaviouristic explanation of consumer behaviour:
    The indifference map is hypothetical in nature and is not based on observed market behaviour. It is subjective in nature instead of objective.
    7. Based on weak ordering:
    Indifference curve analysis is based on the weak ordering hypothesis i.e., a consumer can be indifferent between a large number of combinations.
    BUDGET CONSTRAINT
    BUDGET constraint represents all the combinations of goods and services that a consumer may purchase given current prices within his or her given income. Consumer theory uses the concepts of a budget constraint and a preference map as tools to examine the parameters of consumer choices. Both concepts have a ready graphical representation in the two-good case. The consumer can only purchase as much as their income will allow, hence they are constrained by their budget. BUDGET CONSTRAINT is simply all goods and services an individual can purchase with his or her current income.
    UTILITY MAXIMIZATION
    This simply means when an individual gain satisfaction from the good and services he /she purchased. Utility maximisation is the concept that consumers and businesses seek to maximise their satisfaction or utility from their purchases
    Cobweb theory
    Cobweb theory is the idea that price fluctuations can lead to fluctuations in supply which cause a cycle of rising and falling prices. In a simple cobweb model, we assume there is an agricultural market where supply can vary due to variable factors, such as the weather.

    Assumptions of Cobweb theory
    In an agricultural market, farmers have to decide how much to produce a year in advance – before they know what the market price will be. (supply is price inelastic in short-term)
    A key determinant of supply will be the price from the previous year.
    A low price will mean some farmers go out of business. Also, a low price will discourage farmers from growing that crop in the next year.
    Demand for agricultural goods is usually price inelastic (a fall in price only causes a smaller % increase in demand)

  57. Avatar Ani Emmanuella Ngozi says:

    eg no:2020/249748
    Department:Business Education
    Course :eco 201
    1a) Indifference curve is the curve that represents all the combinations of goods that provides an equal level of utility or satisfaction.
    b)ASSUMPTIONS OF INDIFFERENCE CURVE
    -) The price of the two goods is given
    -) An indifference curve is negative inclined sloping downward
    -)The consumer taste habit and income remains the same throughout the analysis
    -)The consumer acts rationally so as to maximize satisfaction
    -)An indifference curve is always convex to the origin
    C) CRITICISMS OF INDIFFERENCE CURVE
    -) it is based on unrealistic assumption of rationality perfect, competition, division of goods or preference
    -)indifference curve is criticized on the ground that it cannot explain consumer behavior.
    -)indifference curve is non transitive
    -) indifference curve considers different combination of two goods, there may be some combination that is meaningless and cannot be possible in real life
    2A)Budget constraint is an economic term referring to the combined amount of item you can afford within the amount of income available to you .
    2B)Utility maximization describes the effort of the consumer to obtain the greatest degree of utility or value from a purchases, while keeping the cost of the purchase as low as possible
    3) Cobweb theory is the idea that price fluctuations can lead to fluctuation in supply which cause a cycle of rising and falling price.
    * cobweb theory of business cycle was propounded in 1930 independently by professor H Schultz of America,J.Tinbergen of the Netherlands and U. Riaci of Italy.But it was Prof Nicholas kaldo in 1934 that assume there is an agricultural market where supply can vary due to variable factor such as weather, he named it cobweb because of the pattern of movement of price and output resembled a cobweb.
    IT’S ASSUMPTIONS
    -) A key determine of supply will be the price from the previous year.
    -) The parameters determining the supply function having constant value over a series of period
    -)Current demand (D1) for the commodity is a function of current price (P1)
    -) A low price will make some farmers to go out of business
    -)The commodity under consideration is perishable and can be stored only for one year
    CRITICISMS OF COBWEB THEORY
    -) output not determined by price: the theory assumes that the output is determined by the price only. agricultural output in particular is determined by several other factors such as weather, seeds, technology.
    -)This is not strictly a trade cycle theorem it’s concerned only with the farming sector. It’s says nothing in other sphere of production.
    -)Not Realistic:it is not realistic to assume that the demand and supply conditions remains unchanged over the previous and current period.
    -)Continuous cobweb impractical: critics point out that continuous cobweb is impractical because it cannot continue indefinitely. This is because producer incite more loss than profit from it.
    IMPLICATIONS OF COBWEB THEORY
    -)The cobweb model is an oversimplification of the real price determination process but it supplies new information to the market participants about market behavior.
    -) it’s significance lies in the demand, supply and price behavior.
    TYPES OF COBWEB THEORIES
    Divergent cobweb model
    Continuous cobweb model
    Convergent cobweb model

  58. 1: Th indifference curve, its assumptions and criticisms
    An Indifference curve is a graphical representation of a combined products that gives similar kind of satisfaction to a consumer thereby making them indifferent. Every point on the indifference curve shows up that an individual or consumer is indifferent between the two products as it gives him the same kind of utility. In microeconomic analysis, an Indifference curve (IC) is a graph that shows different combinations of two goods or services that provides the same level of total satisfaction to the consumers.
    Assumptions of indifference curve
    1: consumer is rational
    2: price of goods is constant
    3: higher IC curve give the highest satisfaction and lowest curve gives lowest satisfaction.
    4: Two IC curves never intersect each other.
    5: consumers spend a small part of their income.
    Criticisms of indifference curve
    1: Old wine in New Bottles; Professor Robertson does not find anything new in the indifference curve technique and regards it simply as ” The old wine in New Bottles”. It substitutes the concept of preference for utility. Thus this technique fails to bring a positive change in the utility analysis and merely gives new names to the old concepts.
    2: fails to explain the observed behaviour of the consumer: Knight argues that the observed market behaviour of the consumer cannot be explained objectively. It is a mistake not to base the analysis of consumer ‘s demand on the cardinal utility theory. For instance, the income and substitution effects cannot be distinguished on the basis of mere observation. Infact, what we observed is the composite price effect.
    3: indifference curves are Non-transitive; one of the greatest critics of the indifference hypothesis is W.E Armstrong who argues that the consumer is indifferent not because he has complete knowledge of the various combinations available to him but because of his inability to judge the difference between alternative combinations. He further opines that any two points on an Indifference curve are the points of indifference not because they are of iso-utility but of zero- utility difference. It is only when utility difference is zero that the relation between any two or more points on an Indifference curve is symmetrical.
    4: The consumer is not rational: the indifference analysis like the utility theory, assumes that the consumer acts rationally. He is of a calculating mind who carries innumerable combinations of different commodities in his head, can substitute one for the other, compare their total utilities and make a rational choice between various combinations of goods. This is too much to expect of the consumer who has to act under various social, economic and legal constraints.
    5: Limited analysis of consumer’s behaviour: further, the assumption that the consumer buys more units of the same good when it’s price falls is unwarranted. Leaving aside the case of inferior goods, he may not like to have more units of a good because he is under the influence of “conspicuous consumption” and wants to display or to have variety. Change in the tastes of the consumer or his indulging in speculative purchase also affects his preference for the goods. These exceptions makes the indifference analysis a limited study of consumer behaviour.
    No: 2 QUESTION
    BUDGET CONSTRAINT
    In economics, a budget constraint represent all combinations of goods and services that a consumer may purchase given current prices within his or her given income. Consumer theory uses the concepts of a budget constraint and a preference map as tools to examine the parameters of consumer choices. Both concepts have a ready graphical representation in the two-good case. The consumer can only purchase as much as their income will allow, hence they are constrained by their budget. The equation of a budget constraint is PxX+PyY=M where P-x is the price of goods x, and P-y is the price of goods y, and M=income.
    UTILITY MAXIMIZATION
    Utility maximization refers to the concept that individuals and firm seek to get the highest satisfaction from their economic decisions. For example, when deciding how to spend a fixed some, individuals will purchase the combination of goods and services that gives the most satisfaction. Utility maximization can also refer to other decisions, for example, the optional number of hours for labour to supply their labour working more increases income, but reduces leisure time. Utility maximization was first developed by utilitarian philosopher Jeremy Benthan and John Stuart Mill. In microeconomics, the utility maximization problem is the problem consumers face; “how should I spend my money in order to maximize my utility?” It is a type of optimal decision problem. It consists of choosing how much of each available good or service to consume, taking into account a constraint on total spending (income), the price of the goods and their preferences. Utility maximization is an important concept in consumer Theory as it shows how consumers decide to allocate their income. Because consumers are rational, they seek to extract the most benefit for themselves.
    No: 3 Question
    COBWEB THEORY
    Cobweb theory is the idea that price fluctuations can lead to fluctuations in supply which cause a cycle of rising and falling prices. In a simple cobweb model, we assume there is an agricultural market where supply can vary due to variable factors, such as the weather.
    Assumptions of cobweb theory
    1: In an agricultural market, farmers have to decide how much to produce a year in advance before they know what the market price will be.
    2: A key determinant of supply will be the price from the previous year.
    3: A low price will make some farmers go out of business. Also, a low price will discourage farmers from growing that crop in the next year.
    4: Demand for agricultural goods is usually price inelastic (a fall in price only causes a smaller% increase in demand).

    Cobweb theory and price divergence
    Price will diverge from the equilibrium where the supply curve is more elastic than the demand curve, ( at the equilibrium point) if the slope of the supply curve is less than the demand curve, then the price changes could become magnified and the market more unstable.

    Cobweb theory and price convergence
    At the equilibrium point, if the demand curve is more elastic than the supply curve, we get the price volatility falling, and the price will converge on the equilibrium.
    Example of cobweb theory
    Housing: housing is very inelastic and subject to booms and bust. In response to the housing boom in ireland, supply increased. But the price collapsed, leading to a big fall in the building of new housing.

  59. Avatar Aliozor Collins Obinna says:

    NAME: ALIOZOR COLLINS
    REG NO: 2020/249500
    DEPT: ECONOMICS

    An indifference curve is a graph that shows the possible pairing or relation of two goods or commodities that leaves the consumer equally well off or satisfied hence indifferent whenever any pairing of the two things is represented along the curve.
    The Indifference curve analysis measures utility ordinarily. An Indifference Curve shows a combination of two goods x and y in various quantities that provides equal satisfaction to an individual. In Economics, it is used to describe the point where individuals have no particular preference for either one good or another based on their relative quantities.

    An Indifference schedule is a list of combinations of two commodities the list being so arranged that a consumer is indifferent to the combinations preferring none of any other. Its standard indifferent curve analysis operates using a simple two-dimensional chart, each is represented on the type of economic good. Along the Indifference Curve, the consumer is indifferent between any of the combinations of goods to be represented by points on the curve because the combination of goods on an Indifference Curve provides the same level of utility to the consumer.

    Properties of Indifference curve:
    1. A higher Indifference Curve to the right of another represent a higher level of satisfaction and preferable combination of the two groups.
    2. In between the Indifference Curves, there can be a number of other Indifference Curves one for every point in the space on the diagram.
    3. The slope of an Indifference Curve is negative, downward sloping and from left to right. This means that for the consumer to be indifferent to all the combinations on the Indifference Curves, he must have less units of good Y in order to have more of good X.
    4. Indifference Curves can neither touch not intersect each other.
    5. An Indifference Curve can not touch either axis
    6. An important property of Indifference Curve is that they are convex to the origin. The convexity rule implies that the consumer substitute X for Y so that the marginal rate of substitution diminishes. This means that as the amount of X is increased by equal amounts, that of Y diminishes by smaller amounts.
    The slope of an Indifference Curve is known as the Marginal Rate of Substitution

    Assumptions:
    The consumers are rational.
    There are only two goods x and y.
    The consumer possesses complete information about the prices of goods in the market
    The prices of the two goods are given.
    The consumer’s taste, habits and income remained the same throughout the analysis.
    He prefers more of X to less of Y or more of Y to less of X
    An Indifference Curve is always convex to the origin

    Criticisms:
    Consumers are not always rational
    There are not only two goods in the market
    There is never a perfect knowledge of the market
    It is not applicable in the real world
    They are not subject to direct measurements

    2. Budget Constraints refers to a set of possible combinations or bundles that are affordable for a consumer. It is all the combinations that cost either less than or equal to the consumer’s income. It represents all the quantities of goods and services that a consumer can buy keeping his income in mind.
    Budget line is the set of bundles that cost exactly M:
    P1X1 + P2X2 = M

    Utility Maximization
    This is also known as consumer equilibrium. It is a point where a consumer derive maximum satisfaction when his or her marginal utility equals the price of the commodity.

    3. Cobweb Theory is an Economic model that explains why prices might be subject to periodic flunctuations in certain types of markets. It describes cyclical supply and demand in the market where the amount produced must be chosen before prices are observed. Producers expectations about prices are shown to be based on observations of previous prices.

  60. Avatar Mamah Faith Okwukwe says:

    NAME: MAMAH FAITH OKWUKWE
    REG NO: 2020/245317
    DEPARTMENT: ECONOMICS
    COURSE: ECO 201 (MICROECONOMICS)
    LEVEL: 2ND LEVEL

    1) BRIEFLY DISCUSS THE INDIFFERENCE CURVE (INCLUDING THE ASSUMPTIONS AND CRITICISMS)
    Indifference curve analysis measures utility ordinally which means that here, the satisfaction a consumer gets from consuming a certain combination of products is ranked and not measured.

    An indifference curve is a curve on a graph which shows a combination of two goods in various quantities that provides equal satisfaction to an individual. It is a point where individuals have no particular preference for either one good or another based on their relative quantities.

    INDIFFERENCE SCHEDULE: This is a list of combinations of two commodities, the list being so arranged that a consumer is indifferent to the combinations, preferring none to any other.

    PROPERTIES OF INDIFFERENCE CURVES
    It is important to note that indifference curves can neither touch nor intersect each other. Indifference curves are not necessarily parallel to each other, though they are falling negatively inclined to the right, the rate of fall will not be the same for all indifference curves.
    An indifference curve cannot touch either axis. A higher indifference curve to the right of another represents a higher level of satisfaction and preferable combination of the two goods. In between the two indifference curves, there can be a number of other indifference curves, one for every point in the space on the diagram.

    ASSUMPTIONS OF THE INDIFFERENCE CURVE ANALYSIS
    Some of these assumptions of this ordinal theory includes:
    The consumer acts rationally so as to maximize satisfaction.
    There are only to goods involved, say X and Y.
    The consumer possesses complete information about the prices of goods in the market.
    The consumer’s tastes, habits and income remain the same throughout the analysis.
    An indifference curve is always convex to the origin, negatively inclined and downward sloping.
    The curve is smooth and continuous because the two goods are highly divisible and levels of satisfaction change in a continuous manner.
    The consumer arranges the two goods in a scale of preference which means that he has both preference and indifference for the goods. Both preference and indifference are transitive.
    The consumer is in a position to order all possible combinations of the two goods.

    CRITICISMS OF THE INDIFFERENCE CURVE ANALYSIS
    Some of the criticisms are:
    The assumption that there are only two goods in the market is wrong.
    The assumption that the consumer has complete information about the prices of the goods in the market is wrong.
    The assumption that the consumer’s taste, habits and income remain the same throughout the analysis may not always hold.
    The assumption that the two goods are highly divisible does not always hold true.

    2) WRITE SHORT NOTE ON BUDGET CONSTRAINT AND UTILITY MAXIMIZATION
    BUDGET CONSTRAINT:
    When economists refer to a budget constraint, they mean the constraints imposed on consumer choices by their limited budgets.

    All consumers have a limit on how much they earn and, therefore, the limited budgets that they allocate to different goods. Therefore, limited incomes are the primary cause of budget constraints. The effects of the budget constraint are evident in the fact that consumers can’t just buy everything they want and are induced into making choices, according to their preferences, between the alternatives.

    BUDGET SET:
    A budget set is a set of all possible consumption bundles given specific prices and a particular budget constraint. A budget set is more like a consumption opportunity set that a consumer faces, given their limited budget. A budget set is a set of all possible consumption bundles given specific prices and a particular budget constraint.

    BUDGET CONSTRAINT LINE:
    The budget constraint line is a graphical representation of the budget constraint. Consumers who choose a consumption bundle that lies on their budget constraints utilize all of their income.

    It is important to note that the budget constraint represents all the possible combinations of two or more goods that a consumer can purchase, given current prices and their budget.

    Have in mind that the budget constraint line will show all the combinations of goods you can buy given that you spend all the budget you allocate for these particular goods. A budget constraint line shows all the combinations of goods a consumer can purchase given that they spend all their budget that was allocated for these particular goods.

    PROPERTIES OF THE BUDGET CONSTRAINT LINE:
    The slope of the budget line reflects the trade-off between the two goods represented by the ratio of the prices of these two goods.
    A budget constraint is linear with a slope equal to the negative ratio of the prices of the two goods.

    UTILITY MAXIMIZATION:
    Utility maximisation refers to the concept that individuals and firms seek to get the highest satisfaction from their economic decisions.

    An important assumption of classical economics is that the price consumers are willing to pay is a good approximation to the utility that they get from the good. If people are willing to pay £900 for a car, then this suggests the consumer must get a utility of at least £900.

    Utility maximization is also known as consumer equilibrium. It is a point where a consumer derives maximum satisfaction when his or her marginal utility equates the price of the commodity. At this point, marginal utility is equal to zero.

    That is, MUx = Pricex = 0

    Utility maximization is the attachment of the greatest possible total utility. While consumers would want attain maximum utility, they are constrained by the available income and the prices of the goods.

    DIMINISHING MARGINAL UTILITY:
    This is the idea that after a certain point, extra quantities of a good lead to a decline in the marginal utility.

    Marginal utility shapes an individual demand curve, as the utility from extra units declines, consumers are willing to pay a lower price – hence it has a downwardly sloping demand curve.

    HOW INDIVIDUALS ACHIEVE UTILITY MAXIMISATION
    By how much they consume. A consumer will consume a good up to the point where the marginal utility is greater than or equal to the price.If you feel a sandwich gives you more utility than the cost of buying then you will continue to buy.

    When choosing between different goods, the Equi-Marginal principle argues that consumers will maximise total utility from their incomes by consuming that combination of goods where:

    MUa = Pa
    —– —-
    MUb = Pb

    Another way of showing utility maximisation is through the use of indifference curves and budget lines.

    Indifference curves show different combinations of goods which gave the same utility. A budge line shows disposable income and the maximum potential goods that can be bought. Indifference curves further to the right are more desirable as they have bigger combinations of goods. Utility will be maximised at the furthest indifference curve still affordable.

    LIMITATIONS OF UTILITY MAXIMISATION:
    ORDINAL UTILITY: Ordinal utility states consumers find it hard to give exact values of utility, but they can order by preference e.g. I prefer apples to guavas. This theory of ordinal utility was developed by John Hicks and gives less precise but rough guides to utility of consumers.

    IRRATIONAL BEHAVIOUR: Classical economics generally assumes individuals are rational and seek to maximise utility. However, in the real world, this may not be the case.

    IMPULSIVE BEHAVIOUR: This is the act of buying goods which are later regretted.

    LOYALTY: loyalty to certain shops can make consumers purchase commodities there rather than buy cheaper from other shops.

    3)EXTENSIVELY DISCUSS THE COBWEB THEORY
    Cobweb theory is the idea that price fluctuations can lead to fluctuations in supply which cause a cycle of rising and falling prices. That is, a low supply will cause a rise in price, a rise in price will cause an increase in supply, eventually, high supply will cause a fall in price and a fall in price will cause a fall in supply.

    In a simple cobweb model, we assume there is an agricultural market where supply can vary due to variable factors, such as the weather.

    ASSUMPTIONS OF COBWEB THEORY:
    In an agricultural market, farmers have to decide how much to produce a year in advance – before they know what the market price will be (supply is price inelastic in short-term).

    A key determinant of supply will be the price from the previous year. A low price will mean some farmers go out of business. Also, a low price will discourage farmers from growing that crop in the next year. Demand for agricultural goods is usually price inelastic (a fall in price only causes a smaller % increase in demand)
    If there is a very good harvest, then supply will be greater than expected and this will cause a fall in price.

    However, this fall in price may cause some farmers to go out of business. Next year farmers may be put off by the low price and produce something else. The consequence is that if we have one year of low prices, next year farmers reduce the supply. If supply is reduced, then this will cause the price to rise. If farmers see high prices (and high profits), then next year they are inclined to increase supply because that product is more profitable.
    In theory, the market could fluctuate between high price and low price as suppliers respond to past prices.

    COBWEB THEORY AND PRICE DIVERGENCE:
    Price will diverge from the equilibrium when the supply curve is more elastic than the demand curve, (at the equilibrium point). If the slope of the supply curve is less than the demand curve, then the price changes could become magnified and the market more unstable.

    COBWEB THEORY AND PRICE CONVERGENCE:
    At the equilibrium point, if the demand curve is more elastic than the supply curve, we get the price volatility falling, and the price will converge on the equilibrium

    LIMITATIONS OF COBWEB THEORY:
    RATIONAL EXPECTATIONS: The model assumes farmers base next years supply purely on the previous price and assume that next year’s price will be the same as last year (adaptive expectations). However, that rarely applies in the real world. Farmers are more likely to see it as a ‘good’ year or ‘bad year and learn from price volatility.

    PRICE DIVERGENCE IS UNREALISTIC: Price divergence is unrealistic and not empirically seen. The idea that farmers only base supply on last year’s price means, in theory, prices could increasingly diverge, but farmers would learn from this and pre-empt changes in price.

    It may not be easy or desirable to switch supply. A potato grower may concentrate on potatoes because that is his speciality. It is not easy to give up potatoes and take to aubergines.

    OTHER FACTORS AFFECTING PRICE: There are many other factors affecting price than a farmers decision to supply. In global markets, supply fluctuations will be minimized by the role of importing from abroad. Also, demand may vary. Also, supply can vary due to weather factors.

    BUFFER STOCK SCHEMES: Governments or producers could band together to limit price volatility by buying surplus

    A possible example of Cobweb theory is
    housing. Housing is very inelastic and subject to booms and bust. In response to the housing boom in Ireland, supply increased. But, the price collapsed, leading to a big fall in the building of new housing. Tamari, (1981) argued there was evidence of cobweb nature of the Israeli housing market.

    In conclusion, Cobweb Theory concentrates its attention on the important fact that the present events depend upon the past happenings It furnishes us with a technique to demonstrate the process of change over time.

  61. Avatar Umeh chukwuebuka valentine says:

    1 An indifference curve is a graphical representation of different combinations or consumption bundles of two goods or commodities providing equal levels of satisfaction and utility for the consumer.An Indifference curve is downward sloping covex line connecting the quantity of goods consumed with the amount of another goods consumed
    Indifference Curve Assumptions
    1 The consumer is rational to maximize the satisfaction and makes a transitive or consistent choice
    2 The consumer is expected to buy any of the two commodities in a combination
    3 Consumers can rank a combination of commodities based on their satisfaction levels
    4 The consumer behaviour remains constant in the analysis
    5 The utility is expressed in terms of ordinal numbers
    6 Assumes marginal rate of substitution to diminish
    Criticisms
    1 Indifference curve is said to make unrealistic assumptions about human behavior. It’s unable to explain risky choices undertaken by the consumer.
    2 The indifference curve analysis becomes ridiculous when it is assumed that goods are divisible in small units
    2 write short note on budget constraint and utility maximization

    What is utility maximization with an example?
    Utility maximization means making economic decisions that guarantee the highest level of consumer satisfaction (benefit). An example is when a consumer decides to purchase more of “Product A” and less of “Product B” because this combination guarantees more benefit (utility) per dollar.

    How does one maximize utility in economics?
    Consumers maximize utility by determining the combination of goods and services that guarantee maximum benefit. For example, if “Product B” promises more marginal utility per dollar than “Product A,” a rational consumer will purchase more of “Product B.”

    What Does It Mean to Maximize Utility?
    Utility is an economic concept denoting consumers’ benefit or satisfaction from goods or services. According to economic theories on rational choice, consumers always seek to maximize their utility.

    It is important to understand what maximum utility is because it influences the price and demand of commodities and services. Utility is the extent to which an economic good or service satisfies the consumer’s needs. In other words, economic utility is the usefulness of the product or service. It is practically impossible to quantify a consumer’s utility or benefit in economics. Analysts indirectly estimate product or service utility using specific economic models.

    Daniel Bernoulli, a Swiss mathematician, first introduced the concept of utility in the 18th century. Since then, economic theories have advanced, resulting in different types of utility. The two main types of economic utility are:
    Utility for Consumers
    Let’s say that you are a college student whose part-time job pays $200 a week. For better or worse, you still live in college housing, and for worse, you are still on the meal plan. How should you spend your $200? Your spending decisions are determined by the amount of utility, or usefulness, you’ll find in a given activity. As you may remember, economists assume that people act to maximize their utility with their resources, and in this case, your version of resources is your paycheck. In other words, you are not so inclined to parade through the quad, tossing money at the nearest person you see.

    3 Extensively discuss the cobweb theory
    Common theory is the idea that price fluctuations can lead to fluctuations in supply which cause is cycle of rising and falling prices.In a simple cobweb model we assume there is an agricultural market where supply can vary due to variable factors such as the weather.
    Assumptions of cobweb theory
    1 In an agricultural market, farmers have to decide how much to produce a year in advance before they know what the market price will be
    2 A key determinants of supply who be the price from the previous year
    3 Demand for agricultural goods is usually price inelastic ( a fall in price only causes a smaller percent increase in demand)
    4 A low price will mean some farmers go out business.

  62. Avatar Njoku Chisom Precious says:

    Name: NJOKU CHISOM PRECIOUS
    Reg. No. 2020/245277
    Email address: njiokuchisom@gmail.com
    Department: ECONOMICS

    1. INDIFFERENCE CURVE
    An Indifference curve is a graph showing the combination of two goods(X and Y) that gives equal satisfaction and utility to the consumer.
    The amount of satisfaction derived by the consumer from the consumption of the two goods must be equal(indifferent).

    ASSUMPTIONS OF INDIFFERENCE CURVE
    1. It is assumed that the consumer is rational and maximises satisfaction.
    2. The price of goods is constant and given.
    3. It is also assumed that higher Indifference curve gives the highest satisfaction and lower Indifference curve gives the lowest satisfaction.
    4. Two indifferent curve(X and Y) never intersects each other.
    5. An Indifference curve is always convex to the point of origin.

    CRITICISMS ON THE ASSUMPTIONS OF INDIFFERENCE CURVE
    1. Assumptions of the analysis are unrealistic.
    2. It does no take into account the risk of the choices.
    3. It also has a weak ordering hypothesis.

    2. BUDGET CONSTRAINT AND UTILITY
    MAXIMIZATION
    Budget constraint represents all the combinations of goods and services that a consumer may purchase given current prices within his or her given income. It refers to all possible combinations of consumption that someone can afford given the prices of goods and the individual’s income.
    While Utility Maximization is the ability of an individual or a consumer to maximise satisfaction that is being derived from the consumption of commodities which must be within their income or budget.
    It has a lot to do with budget constraint in that the consumer is highly constrained or limited by his income and therefore, must strike balance by maximising satisfaction from that limited income available.

    3. THE COBWEB THEORY
    The Cobweb theory is an economic model that explains why prices might be subject to periodic fluctuations in certain types of markets. It describes cyclical supply and demand in a market where the amount produced must be chosen before prices are observed. Producers’ expectations about prices are assumed to be based on observations of previous prices.

    The convergent case: each new outcome is successively closer to the intersection of supply and demand.
    The divergent case: each new outcome is successively further from the intersection of supply and demand.

    The cobweb model is generally based on a time lag between supply and demand decisions. Agricultural markets are a context where the cobweb model might apply, since there is a lag between planting and harvesting. Suppose for example that as a result of unexpectedly bad weather, farmers go to market with an unusually small crop of strawberries. This shortage, equivalent to a leftward shift in the market’s supply curve, results in high prices. If farmers expect these high price conditions to continue, then in the following year, they will raise their production of strawberries relative to other crops. Therefore, when they go to market the supply will be high, resulting in low prices. If they then expect low prices to continue, they will decrease their production of strawberries for the next year, resulting in high prices.

    The cobweb model can have two types of outcomes:

    If the supply curve is steeper than the demand curve, then the fluctuations decrease in magnitude with each cycle, so a plot of the prices and quantities over time would look like an inward spiral, as shown in the first diagram. This is called the stable or convergent case.If the demand curve is steeper than the supply curve, then the fluctuations increase in magnitude with each cycle, so that prices and quantities spiral outwards. This is called the unstable or divergent case.

    It asserts that supply adjusts itself to changing conditions of demand which are manifested through price changes not instantaneously but after certain period. This time, taken by the supply to adjust itself to changes in demand is known as lag.
    Thus the quantity supplied during any given time period is the function of the price prevailed in earlier time period to while the demand depends upon the price that prevails in period itself. The core of this theory is that the response of supply to price ranges is not instantaneous.

    The Cobweb Theory of trade cycle has its chief application in the case of agricultural products the supply of which can be increased or decreased with certain time-lag. Most crops can be sown and reaped only once a year. For instance, if the price of wheat increases say in September 2007 then supply will not increase instantaneously.

    The farmer will, of course, devote larger farm acreage to wheat cultivation in the next crop season and so it will take one year before supply increases in response to increase in wheat price. Thus the supply of wheat in 2008 will depend upon the price of wheat that prevailed in 2007 which offered the farmer inducement to devote more land to wheat cultivation.
    ASSUMPTIONS OF COBWEB THEORY
    This theorem is based on three assumptions:

    I. Perfect competition in which each producer assumes that present prices will continue and that his own production plans will not affect the market,

    ii. Price is completely a function of the preceding period’s supply

    iii. The commodity concerned is perishable. These assumptions show that the theory is particularly applicable to agricultural products.

  63. Avatar john okechukwu james says:

    NAME: JOHN OKECHUKWU JAMES
    REG NO : 2020/243850
    DEPARTMENT: SOCIAL SCIENCE EDUCATION (EXONOMICS EDUCATION)
    EMAIL: sponkybrown3@gmail.com
    Question one
    Briefly discuss the indifferent curves including its assumption and criticisms

    The indifference curve analysis measures utility ordinally. It explains consumer behaviour in terms of his preferences or rankings for different combinations of two goods, say X and Y. An indifferent curve is drawn from the indifference schedule of the consumer.
    The indifference curves is drawn on the assumption that for all possible point or conbinations of the two commodities on an indifference curve, the total utility remain unchanged.
    indifference schedule
    An indifference schedule can be defined as the table that containng the various combinations of two goods, which yield satisfaction to the consumer and that the consumer are indifference.

    Assumptions of Indifference Curve Analysis:
    The indifference curve analysis retains some of the assumptions of the cardinal theory, rejects others and formulates its own. The assumptions of the ordinal theory are the following:
    (1). The consumer’s tastes, habits and income remain the same throughout the analysis.
    (2).He prefers more of X to less of У or more of Y to less of X.
    (3). An indifference curve is smooth and continuous which means that the two goods are highly divisible and those levels of satisfaction also change in a continuous manner.
    (4). The consumer is in a position to order all possible combinations of the two goods.
    (5) An indifference curve is always convex to the origin
    (6). An indifference curve is negatively inclined sloping downward
    (7). There are two goods X and Y.

    (8). The consumer possesses complete information about the prices of the goods in the market.

    Properties of Indifference Curve:
    From the assumptions described above the following properties of indifference curves can be deduced.
    (1). Properties of Indifference Curve:
    From the assumptions described above the following properties of indifference curves can be deduced.
    (2). The numbers I1, I2, I3, I4….etc. given to indifference curves are absolutely arbitrary. Any numbers can be given to indifference curves. The numbers can be in the ascending order of 1, 2, 4, 6 or 1, 2, 3, 4, etc. Numbers have no importance in the indifference curve analysis.
    (3). Indifferent curve slopes downward from left to right: this is because when the consumers want to have more units of one of the other goods,he must have to reduce the number of units of the other goods, if the level of his satisfaction is to remain the same.
    (4). An indifference curves cannot touch either axis
    (5). Higher indifference curves represent higher levels of satisfaction.
    (6). Indifferent curves are not necessarily parallel to each other.
    (7). indifference curves become complex in case of more than two goods.
    (8). in between two indifference curves there can be a number of other indifference curves.
    CRITICISMS OF INDIFFERENCE CURVE
    (1). Fails to explain risky choice:
    Indifference curve analysis is criticized on the ground that it cannot explain consumer behaviour when he has to choose among alternatives involving risk or uncertainty of expectation.
    (2). Absurd and unrealistic combinations:
    Indifference curve analysis is based on hypothetical combinations. When we consider different combinations of two goods, then there may be some combinations that are meaningless and cannot be possible in real life.
    (3). Based on weak ordering:
    Indifference curve analysis is based on the weak ordering hypothesis i.e., a consumer can be indifferent between a large number of combinations.
    (4). Indifference curve is non-transitive:
    Prof. W.E. Armstrong has argued that a consumer is indifferent between close alternative combinations only because he is not able to perceive the difference between the two.
    But as the difference of combinations increases, the difference in the satisfaction of different combinations becomes evident and so the different combinations on the same indifference curve do not yield equal satisfaction.
    (5). Unrealistic assumptions:
    It is based on unrealistic assumptions of rationality, perfect competition, divisibility of goods and perfect knowledge of scale or preference.

    QUESTION TWO
    Write short note on budget constraint and utility maximization.

    Budget contraint
    The budget
    constraint shows the various
    bundles of goods that the
    consumer can afford for a given
    income. Here the consumer buys
    bundles of Pepsi and pizza. The
    more Pepsi he buys, the less
    pizza he can afford. A budget constraint is a constraint imposed on consumer choice by their limited budget.All consumers have a limit on how much they earn and, therefore, the limited budgets that they allocate to different goods. Ultimately, limited incomes are the primary cause of budget constraints. The effects of the budget constraint are evident in the fact that consumers can’t just buy everything they want and are induced into making choices, according to their preferences, between the alternatives.

    Properties of the budget constraint line:
    (1). The slope of the budget line reflects the trade-off between the two goods represented by the ratio of the prices of these two goods.
    (2). A budget constraint is linear with a slope equal to the negative ratio of the prices of the two goods.
    UTILILTY MAXIMIZATION
    Utility maximization is a strategic scheme whereby individuals and companies seek to achieve the highest level of satisfaction from their economic decisions. Utility maximisation is the concept that consumers and businesses seek to maximise their satisfaction or utility from their purchases.
    Total Utility Maximization
    The aggregate level of satisfaction consumers derive from consuming a particular commodity. Total utility allows economic analysts to determine the demand for goods and services.
    Total utility refers to the total amount of satisfaction that a person obtains by consuming a specific quantity of units of a product at a given time.
    TU = U1 + MU2 + MU formular for total utility maximization
    where ;
    TU is Total Utility
    U is Utility
    MU is Marginal Utility

    Marginal Utility Maximization
    The additional benefit (fulfillment and satisfaction) customers accrue from purchasing an extra unit of a commodity or service.
    Marginal utility refers to the additional satisfaction that a consumer achieves from utilizing one additional item.

    QUESTION THREE
    Extensive discuss the cobweb theory

    Cobweb theory is the idea that price fluctuations can lead to fluctuations in supply which cause a cycle of rising and falling prices.
    In a simple cobweb model, we assume there is an agricultural market where supply can vary due to variable factors, such as the weather.
    Assumptions of Cobweb theory
    In an agricultural market, farmers have to decide how much to produce a year in advance – before they know what the market price will be. (supply is price inelastic in short-term)
    A key determinant of supply will be the price from the previous year.
    A low price will mean some farmers go out of business. Also, a low price will discourage farmers from growing that crop in the next year.
    Demand for agricultural goods is usually price inelastic (a fall in price only causes a smaller % increase in demand)

    Limitations of Cobweb theory
    (1). Rational expectations: The model assumes farmers base next years supply purely on the previous price and assume that next year’s price will be the same as last year (adaptive expectations).
    (2). Price divergence is unrealistic and not empirically seen: The idea that farmers only base supply on last year’s price means, in theory, prices could increasingly diverge, but farmers would learn from this and pre-empt changes in price.
    (3). Buffer stock schemes: Governments or producers could band together to limit price volatility by buying surplus
    (4). Other factors affecting price: There are many other factors affecting price than a farmers decision to supply. In global markets, supply fluctuations will be minimized by the role of importing from abroad. Also, demand may vary. Also, supply can vary due to weather factors.
    (5). It may not be easy or desirable to switch supply: A potato grower may concentrate on potatoes because that is his speciality. It is not easy to give up potatoes and take to aubergines.

  64. Avatar Umeh Success Precious, Education Economics. 2020/243839 says:

    1. An indifference curve depicts a combination of two items in varying proportions that provides an individual with equal satisfaction (utility).
    It is a term used in economics to indicate the point at which individuals have no preference for one good over another based on their relative amounts.
    ASSUMPTIONS
    i. The consumer is rational to maximize the satisfaction and makes a transitive or consistent choice.
    ii. The consumer is expected to buy any of the two commodities in a combination.
    iii. Consumers can rank a combination of commodities based on their satisfaction levels.
    iv. The combination with the higher satisfaction level is preferred.
    v. The consumer behavior remains constant in the analysis.
    vi. The utility is expressed in terms of ordinal numbers.
    CRITICISMS
    a. Does not provide behaviouristic explanation of consumer behaviour.
    b. It’s combinations are Absurd and unrealistic.
    c. Fails to explain risky choices.
    d. Unrealistic assumptions.

    2a. The total number of products you can afford within your present budget is referred to as your budget constraint.
    A budget constraint is an economic word that refers to the total number of products you can afford within the amount of money you have available to you. It demonstrates the variety of options available within that budget.
    2b. Utility maximization is the idea that individuals and organizations want to get the most out of their economic decisions.
    The utility function assesses the degree to which an individual’s fulfillment is realized.

    3. The cobweb model, also known as cobweb theory, is an economic model that explains why prices in particular types of markets may fluctuate on a regular basis. It describes cyclical supply and demand in a market where the quantity produced must be determined before prices can be seen. Producers’ pricing forecasts are considered to be based on previous price observations. In 1934, Nicholas Kaldor examined the model and coined the phrase “cobweb theorem”, using previous German investigations by Henry Schultz and Umberto Ricci.

  65. Avatar AJAEGBUEZE+BONAVENTURE+CHINEMELUM says:

    NAME: AJAEGBUEZE BONAVENTURE CHINEMELUM
    REG.NO.:2020/242570
    GMAIL: ajaegbuezebonaventure4@gmail.com
    Answers
    1. An indifference curve is a graph that shows the possible pairing or relation of two goods or commodities that leaves the consumer equally well off or satisfied hence indifferent whenever any pairing of the two things is represented along the curve.
    The Indifference curve analysis measures utility ordinarily. An Indifference Curve shows a combination of two goods x and y in various quantities that provides equal satisfaction to an individual. In Economics, it is used to describe the point where individuals have no particular preference for either one good or another based on their relative quantities.

    An Indifference schedule is a list of combinations of two commodities the list being so arranged that a consumer is indifferent to the combinations preferring none of any other. Its standard indifferent curve analysis operates using a simple two-dimensional chart, each is represented on the type of economic good. Along the Indifference Curve, the consumer is indifferent between any of the combinations of goods to be represented by points on the curve because the combination of goods on an Indifference Curve provides the same level of utility to the consumer.

    Properties of Indifference curve:
    1. A higher Indifference Curve to the right of another represent a higher level of satisfaction and preferable combination of the two groups.
    2. In between the Indifference Curves, there can be a number of other Indifference Curves one for every point in the space on the diagram.
    3. The slope of an Indifference Curve is negative, downward sloping and from left to right. This means that for the consumer to be indifferent to all the combinations on the Indifference Curves, he must have less units of good Y in order to have more of good X.
    4. Indifference Curves can neither touch not intersect each other.
    5. An Indifference Curve can not touch either axis
    6. An important property of Indifference Curve is that they are convex to the origin. The convexity rule implies that the consumer substitute X for Y so that the marginal rate of substitution diminishes. This means that as the amount of X is increased by equal amounts, that of Y diminishes by smaller amounts.
    The slope of an Indifference Curve is known as the Marginal Rate of Substitution

    Assumptions:
    The consumers are rational.
    There are only two goods x and y.
    The consumer possesses complete information about the prices of goods in the market
    The prices of the two goods are given.
    The consumer’s taste, habits and income remained the same throughout the analysis.
    He prefers more of X to less of Y or more of Y to less of X
    An Indifference Curve is always convex to the origin

    Criticisms:
    Consumers are not always rational
    There are not only two goods in the market
    There is never a perfect knowledge of the market
    It is not applicable in the real world
    They are not subject to direct measurements

    2. Budget Constraints refers to a set of possible combinations or bundles that are affordable for a consumer. It is all the combinations that cost either less than or equal to the consumer’s income. It represents all the quantities of goods and services that a consumer can buy keeping his income in mind.
    Budget line is the set of bundles that cost exactly M:
    P1X1 + P2X2 = M

    Utility Maximization
    This is also known as consumer equilibrium. It is a point where a consumer derive maximum satisfaction when his or her marginal utility equals the price of the commodity.

    3. Cobweb Theory is an Economic model that explains why prices might be subject to periodic flunctuations in certain types of markets. It describes cyclical supply and demand in the market where the amount produced must be chosen before prices are observed. Producers expectations about prices are shown to be based on observations of previous prices.

  66. Avatar Chukwu Emmanuel Chimezie says:

    NAME: CHUKWU EMMANUEL CHIMEZIE
    REG NO: 2020/241925
    DEPARTMENT: ECONOMICS MAJOR(200 LEVEL)

    NO 1
    Q. Discuss briefly the Indifference Curve (Including its Assumptions and Criticisms)

    Ans: An indifference curve is a graph that shows the possible pairing or relation of two goods or commodities that leaves the consumer equally well off or satisfied hence indifferent whenever any pairing of the two things is represented along the curve.
    The Indifference curve analysis measures utility ordinarily. An Indifference Curve shows a combination of two goods x and y in various quantities that provides equal satisfaction to an individual. In Economics, it is used to describe the point where individuals have no particular preference for either one good or another based on their relative quantities.
    For instance that someone loves both ice cream and chocolate. Then, it may been different if one bought 15 ice cream and no chocolates or 42 chocolate and no ice cream or some combination of the two like 15 ice cream and 15 chocolate. Each combination has value in its own right.
    An Indifference schedule is a list of combinations of two commodities the list being so arranged that a consumer is indifferent to the combinations preferring none of any other. Its standard indifferent curve analysis operates using a simple two-dimensional chart, each is represented on the type of economic good. Along the Indifference Curve, the consumer is indifferent between any of the combinations of goods to be represented by points on the curve because the combination of goods on an Indifference Curve provides the same level of utility to the consumer.

    Properties of Indifference curve

    1. A higher Indifference Curve to the right of another represent a higher level of satisfaction and preferable combination of the two groups.
    2. In between the Indifference Curves, there can be a number of other Indifference Curves one for every point in the space on the diagram.
    3. The slope of an Indifference Curve is negative, downward sloping and from left to right. This means that for the consumer to be indifferent to all the combinations on the Indifference Curves, he must have less units of good Y in order to have more of good X.
    4. Indifference Curves can neither touch not intersect each other.
    6. An Indifference Curve can not touch either axis
    7. An important property of Indifference Curve is that they are convex to the origin. The convexity rule implies that the consumer substitute X for Y so that the marginal rate of substitution diminishes. This means that as the amount of X is increased by equal amounts, that of Y diminishes by smaller amounts.

    NB: the slope of an Indifference Curve is known as the Marginal Rate of Substitution (MRS)
    The MRS measures the rate at which the consumer is just willing to substitute one good for the other as long as the new good is equally satisfying

    Assumptions:

    1. The consumers are rational.
    2. There are only two goods x and y.
    3. The consumer possesses complete information about the prices of goods in the market
    4. The prices of the two goods are given.
    5. The consumer’s taste, habits and income remained the same throughout the analysis.
    6. He prefers more of X to less of Y or more of Y to less of X
    7. An Indifference Curve is always convex to the origin

    Criticisms:

    1. Consumers are not always rational
    2. There are not only two goods in the market
    3. There is never a perfect knowledge of the market
    4. It is not applicable in the real world
    5. They are not subject to direct measurements

    No 2
    Q. Write short note on Budget Constraints and Utility Maximisation

    Ans: Budget Constraints refers to a set of possible combinations or bundles that are affordable for a consumer. It is all the combinations that cost either less than or equal to the consumer’s income. It represents all the quantities of goods and services that a consumer can buy keeping his income in mind.
    Budget line is the set of bundles that cost exactly M:
    P1X1 + P2X2 = M
    Where
    P1X1 is the amount of money the consumer is spending on good 1
    P2X2 is the amount of money that the consumer is spending on good 2
    M is the amount of money the consumer has to spend.

    Utility Maximization
    This is also known as consumer equilibrium. It is a point where a consumer derive maximum satisfaction when his or her marginal utility equals the price of the commodity. At this point marginal utility is equal to zero
    Thus; MUx = Price x = 0
    It is the attainment of the greatest possible total utility

    No 3
    Q. Extensively discuss the Cobweb Theory

    Ans: The Cobweb Model or Cobweb Theory was coined by Nicholas kaldor in 1934. Cobweb Theory is an Economic model that explains why prices might be subject to periodic flunctuations in certain types of markets. It describes cyclical supply and demand in the market where the amount produced must be chosen before prices are observed. Producers expectations about prices are shown to be based on observations of previous prices.
    The Model:
    The Cobweb Model is generally based on a time lag between supply and demand decisions. Agricultural markets are a context where the Cobweb Model might apply since there is a lag between planting and harvesting
    Suppose for example that as a result of an unexpectedly bad weather, farmers go to market with an unusually small crop of strawberries this shortage equivalent to a leftward shift in the market supply curve results in higher prices if farmers expect these high price conditions to continue. Then in the following year they will reach the production of strawberries relative to other crops.
    Therefore when they go to the market, the supply will be high resulting in low prices. If they then expect lower prices to continue, they will decrease the production of strawberries for the next year resulting in higher prices.

    TWO TYPES OF OUTCOME OF THE COBWEB MODEL

    1. If the supply curve is steeper than the demand curve, then the fluctuations decrease in magnitude with each cycle, so a plot of the prices and quantities overtime would look like an Inward spiral.
    This is called the stable or convergent

    2. If the demand curve is steeper than the supply curve, then the flunctuations increase magnitude with each cycle so that prices and quantities spiral outwards.
    This is called the unstable or divergent case

  67. 1. An indifference curve is a graphical representation used in economics to show the different combinations of two goods that provide the same level of utility or satisfaction to a consumer. It’s assumes that the consumer is rational and seek to maximize their satisfaction or utility subject to their budget constraint.
    Some criticism assume that consumer have perfect information and are able to make optimal choices, in reality consumer may have limited information and make suboptimal decision.

    2. Budget constraint refers to the limit on the amount of goods and services that a consumer can purchase giving their income and the prices of the goods.
    Utility maximization refers to the process by which a consumer chooses the combination of goods that gives them the highest level of satisfaction or utility, subject to their budget constraint.

    3. The coweb theory is an economic model that explains how changes in supply and demand can lead fluctuations in prices over time. The theory is named after the spider web-like pattern that results from the cyclical behavior of prices.
    The basic premise of the coweb theory is that there is a time lag between changes in demand and changes in supple. For example if demand for a particular products increases, it may take some time for producer to respond by increasing their output. By the time their increase supply available, the demand may have already shifted again, resulting in excess supply and lower prices.
    This cycle can continue, with prices and quantity fluctuating around the equilibrium point over time. The coweb model suggests that this fluctuations can dampered or amplified depending on the responsiveness of supply and demand to changes in prices.

  68. Avatar Odu Gideon Odu says:

    Name: Odu Gideon Odu
    Course: Eco 201
    Department: Economics
    Answer
    1 And indifference curve shows a combination of two good, say X and Y is various quantities that provides equal satisfaction (utility) to an individual in economics, it is used to describe the point where individuals have no particular preference for O : the one good or another based on their relative quantities.
    An indifference schedule is a list of combination two commodities the list being so arranged that a consumer is different to the combination, preferring none of any other
    ASSUMPTIONS OF THE INDIFFERENCE CURVE ANALYSIS
    1 The customers act rationally so as to maximize satisfaction
    2 There are two goods X and Y
    3 The consumer possesses complete information about the price of goods in the market
    4 The price of the two goods are given
    5 The consumers taste, habit and income remaining the same throughout the analysis
    6 He prefer more of X to loss of Y or more of Y to loss of X
    7 An indifference curve is always convex to the origin
    8 An indifference curve is negatively inclined sloping downward
    CRITICISM
    Indifference curve is said to Make unrealistic assumption about human behavior
    1 it is unable to explain risky choice undertaken by the consumers
    2 it has been criticized for being an ‘old win in a new bottle’ for it has merely rehashed the concept of diminishing marginal utility of a product in new forms
    3 Cardinal measurement implicit in I . C technique
    It is assumed in that the consumer is capable of regarding change in another situation.
    4. Indifference curves are non-transitive; it is only when utility difference is zero that the relation between any two or more points on an indifference curve is symmetrical.
    5. The consumer is not rational
    2) BUDGET CONSTRAINT is the total amount of items you can afford within a current budget. Budget constraint illustrates the range of choices available within that budget. Opportunity cost is the amount or item you give up in exchange for something else. Sunk cost is the amount spent in the past and cannot be recovered. The budget constraint is the boundary of the boundary of the opportunity set-all possible combinations of consumption that someone can afford given the price of goods and the individuals income
    UTILITY MAXIMIZATION
    Utility maximization is the concepts that individuals and organization seek to attain the highest level of satisfaction from their economics decision
    Utility is maximized when total outlays equals the budget available and when the ratios of marginal utility to price are equal for all goods and services a consumer consumes; this is the utility maximizing condition
    The cobweb theory
    The cobweb theory is an economic model that explains why prices might be subjected to periodic fluctuations in certain types of market
    It describes cyclical supply and demand in a market where the amount produced must chosen before price are observed.

  69. Avatar Chidiebere Favour Chiwemmeri says:

    Name: Chidiebere Favour Chiwemmeri.
    Reg No: 2020/242578.
    Department: Economics.
    Level: 200.
    Course: Eco201 online assignment.

    Qs1. Briefly discuss the indifference curve (including its assumptions and criticisms).

    Ans. Indifference curve is a curve showing the different combinations of two commodities in different quantities that offer the same level of satisfaction or utility to the consumer. It shows that a consumer is indifferent meaning that the consumer doesn’t prefer one good over another but combines the both of them in different quantities to suit his satisfaction.

    The slope of the indifference curve that is, the marginal rate of substitution is always convex to the origin. It supports the ordinal approach to utility by stating that utility can be ranked at various levels of consumption.

    In the case where there’s an increase in the indifference curve, causing it to shift continually to the right, producing three different indifference curves I1, I2 and I3, the last indifference curve formed that is I3 is the curve where the consumer derives the highest level of satisfaction.

    The assumptions of the indifference curve states that there are only two goods in the market. Goods X and goods Y. It also assumes that the consumer has perfect knowledge of the prices of goods in the market. It assumes that the prices of the two goods are given. It also assumes that the consumer arranges the two goods in a scale of preference.

    The indifference curve further assumes that the consumer acts rationally to maximize satisfaction and that the consumer should prefer more of good X to good Y or vice versa.
    The consumer’s taste, habit and income should remain constant through out the analysis and not two indifference curves should intersect each other.

    The indifference curve theory has further been criticized for its unrealistic economic assumptions. For example, there are more than two goods available in the market and it is impossible for consumers to have perfect knowledge of the prices of goods and services in a real market setting. Also, the consumer’s income, taste and habit are prone to changes and are not static.

    Finally, there’s no real market state as a perfect competition and consumers donkt act rationally at times.

    Qs2. Write short note on budget constraints and utility maximization.

    Ans. Budget Constraints: This is the boundary of the consumer bundle that is, all possible combinations of consumption that a comsumer can afford given the prices of goods and the consumer’s income.

    A budget constraint occurs when a consumer is limited in consumption patterns by a certain income. It is based in the principle of scarcity and trade-offs. All consumers have a limit on how much they earn and, therefore, the principle of scarcity plays in.
    Ultimately, limited incomes are the primary cause of budget constraints. The effects of the budget constraint are evident in the fact that consumers can’t just buy everything they want and are induced into making choices according to their preferences, between the alternatives. And that implies the principle of trade-off.

    To conceptualize this in a simple way, let’s imagine a student having only two items that can be purchased with in his budget: a pen and a school bag. The budget can be spent entirely on pen, entirely on t-shirts, or some combination of both. The quantity of either good that can be purchased is determined by the price of the good, the quantity purchased, and the price of the other good.

    Mathematically, a budget constraint in the example with only two goods can be expressed as follows: (P1 x Q1) + (P2 x Q2) = M
    Where P1 is the price of the first good, P2 is the price of the second good, Q1 is the quantity of the first good, Q2 is the quantity of the second good, and M is the money or income available. This equation illustrates that the quantities of goods 1 and 2 to be purchased are determined by the price and the constraints imposed by the money available.

    Utility Maximization: another word for “Utility” in economics is “Satisfaction.” It is the level of satisfaction a comsumer derives from consuming a particular commodity.

    Utility maximization is a strategic scheme whereby individuals and companies seek to achieve the highest level of satisfaction from their economic decisions. For example, when a company’s resources are limited, management will implement a plan of purchasing goods or services that provides the maximum benefit.

    The concept of utility maximization was developed by the utilitarian philosophers Jeremy Bentham and John Stuart Mill. It was incorporated into economics by English economist Alfred Marshall. An assumption in classical economics is that the cost of a product that a consumer is willing to pay is an approximation of the maximum utility that they receive from the purchased good.

    In order to understand utility maximization, the combination of goods or services that maximize utility is determined by comparing the marginal utility of two choices and finding the alternative with the highest total utility within the consumer’s budget limit. The decision is influenced by the option that produces a higher level of satisfaction. This explains how companies and individuals develop consumption habits.

    The consumer may consider purchasing more of one item and less of another. Through maximizing utility, the consumer will buy an item that produces the greatest marginal utility with the least amount of spending.

    For example, if product ‘A’ comes with twice more marginal utility than product ‘B,’ that means product ‘A’ is providing more marginal utility than product ‘B.’ As a result, the consumer may decide to buy more of product ‘A.’

    A consumer is said to have maximized his or her utility for two products A and B when the marginal utility of product A when divided by its price equals the marginal utility of product B when divided by its price.

    Mathematically, utility maximization is expressed as: MUA/PA= MUB/PB. Where MUA is the marginal utility of product A and PA the price of product A. MUB is the marginal utility of product B and PB is the price of product B

    Qs3. Extensively discuss the Cobweb theory.

    Ans. The cobweb theorem is an economic model used to explain how small economic shocks can become amplified by the behaviour of producers. This amplification is, essentially, the result of information failure, where producers base their current output on the average price they obtain in the market during the previous year.

    It describes cyclical supply and demand in a market where the amount of a commodity produced must be chosen based on the price of that commodity for the previous year before prices of the current year are observed.

    Cobweb theory is the idea that price fluctuations in the previous year can lead to fluctuations in supply in the current year which cause a cycle of rising and falling prices. This is, to some extent, a non-rational decision, given that a supply side shock between planting and harvesting (such as an unexpectedly good or bad harvest) can lead to an unexpectedly lower or higher price. This results in either a higher output or a lower output in subsequent years, and moves the market into a long-term disequilibrium position.

    Nicholas Kaldor, in 1934, analyzed the model and coined the term “cobweb theorem” from his claims that the theory acts like a cobweb.
    In a simple cobweb model, we assume that there is an agricultural market where supply can vary due to variable factors, such as the weather.

    The cobweb theory assumes that farmers in an agricultural market, have to decide how much to produce a year in advance before they know what the market price will be.

    It also assumes that supply is price inelastic in short-term. The price from the previous year is also a key determinant of supply. A low price will mean some farmers go out of business. Also, a low price will discourage farmers from growing that crop in the next year.

    The cobweb theory also holds on the assumption that there is a perfect competition in which all producers are not able to influence prices. Demand for agricultural goods in this theory is usually price inelastic (a fall in price only causes a smaller percentage increase in demand).

  70. Avatar Anelechukwu precious kelechi says:

    Name : Anelechukwu Precious Kelechi
    Department: Economics
    Registration Number: 2020/242577

    1. Briefly discuss the indifference curve (including it’s assumptions and criticism)

    The indifference curve analysis measures utility ordinally. An indifference curve shows a combination of two goods; Say X and Y in various quantities that provides equal satisfaction (utility) to an individual. In economics,it is used to describe the point where individuals have no particular preference for either one good or another based on their relative quantities.
    A standard indifference curve analysis operates using two-dimensional chart. Each axis represent one type of economic good. Along the indifference curve,the consumer is indifferent between any of the combination of goods represented by points on the curve because the combination of goods on an indifference curve provide same level of utility to the consumer. The indifference curve is convex because of diminishing marginal utility.

    ASSUMPTIONS OF THE INDIFFERENCE CURVE analysis
    1. The consumer acts rationally so as to maximise satisfaction
    2. There are two goods X and Y
    3. The consumer possess complete information about the prices of goods in the market
    4. The prices of the two goods are given
    5. The consumers tastes, habits and income remain the same throughout the analysis
    6. He prefers more or X to less of Y or more of Y to less of X
    7. An indifference curve is always convex to the origin
    8. The Indifference curve is downward sloping and negatively inclined
    9. The consumer arranges the two goods in a scale of preference which means that he has both ‘preference’ and ‘indifference’ for the goods

    10. Both preference and indifference are transitive which means that if combination of A is preferable to B, and B to C, then A is preferable to C. Similarly if the consumer is indifferent between combinations A and B and B and C, then he is indifferent between A and C. This is an important assumption for making consistent choices among a large number of combinations

    11. The consumer is in a position to order all possible combinations of the two goods

    12. An indifference curve is smooth and continuous which means that the two goods are highly divisible and that levels of satisfaction also change in a continuous manner

    CRITICISM OF INDIFFERENCE CURVE
    1. Unrealistic assumptions:
    It is based on unrealistic assumptions of rationality, perfect competition, divisibility of goods and perfect knowledge of scale or preference.

    The purchases of a consumer arc very much affected by habits, customs and fashion. Therefore, a consumer does not act always rationally. We cannot expect a consumer to know his indifference map. Goods Visible and perfect completion is a myth.

    2. No novelty:
    Prof. D.H. Robertson remarked that the indifference curve technique is merely “An old wine in new bottle.”

    This technique is similar to the utility analysis because it merely gave new names to old terms. The concept of utility is replaced by scale of preference, tendency of diminishing marginal utility is replaced by diminishing marginal rate of substitution and cordinal numbers such as 1, 2, 3 etc., were labelled as ordinal numbers I, II, III, etc.

    The conditions of equilibrium in both analysis are similar. According to utility analysis the consumer is in equilibrium when:

    MUX / MUy = Px/ Py
    According to QC, equilibrium is given by:

    MRSxy= Px/ Py

    Where MRS xy = MUX / MUy

    By substituting for MUx/ MUy MRSxy, we get
    MUx/ MUy = Px / Py
    Therefore, conditions of equilibrium are similar in both the techniques.

    But this criticism is untenable. Prof. Hicks claims, “The replacement of diminishing marginal rate of substitution is not mere translation.

    It is a positive change in the theory of consumer demand.” We need not measure utility in fact to know the marginal rate of substitution. The consumer is simply asked to tell how much of if he gives to take an additional unit of X.

    3. Indifference curve is non-transitive:
    Prof. W.E. Armstrong has argued that a consumer is indifferent between close alternative combinations only because he is not able to perceive the difference between the two.

    But as the difference of combinations increases, the difference in the satisfaction of different combinations becomes evident and so the different combinations on the same indifference curve do not yield equal satisfaction.
    Thus, if Armstrong argument is accepted different points on an indifference curve give different satisfaction. The indifference curve will become non-transitive.

    4. Fails to explain risky choice:
    Indifference curve analysis is criticized on the ground that it cannot explain consumer behaviour when he has to choose among alternatives involving risk or uncertainty of expectation.

    To make a choice among uncertain alternatives quantitative measurement of utility is needed to decide whether the risk is worth taking. In such situations cordinal system of utility can explain consumer bahaviour.

    5. Absurd and unrealistic combinations:
    Indifference curve analysis is based on hypothetical combinations. When we consider different combinations of two goods, then there may be some combinations that are meaningless and cannot be possible in real life.

    2. Write a short note on Budget Constraint and utility maximization

    A budget constraint is an economic term referring to the combination amount of items you can afford within the amount of income available to you. In economics, a budget constraint represents all the combination of good and services that a consumer may purchase given current prices within his or her given income. Consumer theory uses the concepts of a budget constraints and a preference map as a tools to examine the parameters of consumer choices. The consumer can only purchase as much as their income will allow hence they are constrained by their budget. The equation of a budget constraints is P_x X + P_y Y = m
    Where P_x is the price of good X and P_y is the price of good Y and m = Income

    Utility Maximization is also known as consumer equilibrium it is a point where a consumer derives maximum satisfaction when his or her marginal utility equates the price of the commodity. At this point, marginal utility is Zero
    This, Mux = Price x =0
    Utility maximization is the attainment of the greatest possible total utility. While consumers would want to attain maximum utility they are constrained by the available income and the prices of goods.
    Note that the laws of diminishing marginal utility directly impacts a company’s pricing because the price charged for and item must correspond to the consumer’s marginal utility and willingness to consume or utilize a good

    3. EXTENSIVELY DISCUSS THE COBWEB THEORY

    Cobweb theory is an economic model that explains why prices might be subject to periodic fluctuations in certain types of markets. It describes cyclical supply and demand in a market where the amount produced must be chosen before prices are observed. Producer’s expectations bout prices are assumed to be based on observation of previous prices. Nicholas Kaldor analyzed the model in 1934, coining the term “Cobweb theory”
    Cobweb theory is and idea that price fluctuations can leas to fluctuations in supply which cause a cycle of rising and falling prices.

    ASSUMPTIONS OF COBWEB THEORY
    In an agricultural market, farmers have to decide how much to produce a year in advance – before they know what the market price will be. (supply is price inelastic in short-term)
    A key determinant of supply will be the price from the previous year.
    A low price will mean some farmers go out of business. Also, a low price will discourage farmers from growing that crop in the next year.
    Demand for agricultural goods is usually price inelastic (a fall in price only causes a smaller % increase in demand)
    1. If there is a very good harvest, then supply will be greater than expected and this will cause a fall in price.
    2. However, this fall in price may cause some farmers to go out of business. Next year farmers may be put off by the low price and produce something else. The consequence is that if we have one year of low prices, next year farmers reduce the supply.
    3. If supply is reduced, then this will cause the price to rise.
    4. If farmers see high prices (and high profits), then next year they are inclined to increase supply because that product is more profitable.
    In theory, the market could fluctuate between high price and low price as suppliers respond to past prices.

    LIMITATIONS OF COBWEB THEORY
    1. Rational expectations. The model assumes farmers base next years supply purely on the previous price and assume that next year’s price will be the same as last year (adaptive expectations). However, that rarely applies in the real world. Farmers are more likely to see it as a ‘good’ year or ‘bad year and learn from price volatility.

    2. Price divergence is unrealistic and not empirically seen. The idea that farmers only base supply on last year’s price means, in theory, prices could increasingly diverge, but farmers would learn from this and pre-empt changes in price.

    3. It may not be easy or desirable to switch supply. A potato grower may concentrate on potatoes because that is his speciality. It is not easy to give up potatoes and take to aubergines.

    4. Other factors affecting price. There are many other factors affecting price than a farmers decision to supply. In global markets, supply fluctuations will be minimized by the role of importing from abroad. Also, demand may vary. Also, supply can vary due to weather factors.

    5. Other factors affecting price. There are many other factors affecting price than a farmers decision to supply. In global markets, supply fluctuations will be minimized by the role of importing from abroad. Also, demand may vary. Also, supply can vary due to weather factors.

    6. Buffer stock schemes. Governments or producers could band together to limit price volatility by buying surplus.

  71. Avatar Remigius Chidebere Richard says:

    NAME: REMIGIUS CHIDEBERE RICHARD

    REG NO: 2020/242621

    DEPARTMENT: ECONOMICS MAJOR

    QUESTION 1.
    BRIEFLY DISCUSS THE INDIFFERENCE CURVE (INCLUDING IT’S ASSUMPTION AND CRITICISM)

    An indifference curve is a downward sloping convex line connecting the quantity of one good consumed with the amount of another good consumed. Irish-born British economist Francis Ysidro Edgeworth first proposed this two-dimensional graph, also known as the iso-utility curve.

    While each axis denotes a different form of consumer goods, the curve features unique combinations or consumption bundles for any two commodities in points. These combinations provide the same level of satisfaction and utility to the consumer. Since the consumer gets an equal preference for all bundles of goods, they are indifferent about any two combinations on the curve.
    The slope of the curve at any given point represents utility for any combination of two goods. When it occursv, it is known as the marginal rate of substitution (MRS). It shows the consumer’s preference for one good over another only if it is equally satisfying.

    Indifference Curve Properties

    1. Downward Slope: In a curve, when the consumption of one commodity increases, the consumption of another decreases for any combination. Since it indicates a positive marginal rate of substitution (MRS), ensuring the same level of satisfaction, it leads to a negative or downward slope.

    2. Strictly Convex Slope: The curve allows the substitution among two commodities in any combination. As consumption of one good over another gains less utility, the marginal rate of substitution between two goods diminishes. It is visible as a consumer moves along the curve to the right. Hence, it is strictly convex.

    3. Satisfaction Levels Directly Proportional To Axes Levels: An indifference map is the graphical representation of a group of curves. A curve occurring to the right of an existing one indicates a higher level of consumer satisfaction. And the one on the left shows a lesser consumer satisfaction level. Similarly, the curve at a higher axis level shows greater consumer satisfaction than the curve at a lower axis level. Hence, the consumer always prefers to move upwards in the indifference map.

    4. Never Intersects Each Other: The set of curves will never intersect each other. The higher level and lower level of curves show different levels of satisfaction. Hence, they do not meet at the point of intersection.
    5. Never Touches X- and Y-Axes: If a curve touches the horizontal (x-axis) and the vertical (y-axis), it denotes that the assumption of the consumer purchasing two commodities in a combination could be wrong. It shows the consumer’s interest in buying only one good. Hence, the curve never touches x- and y-axes.

    Indifference Curve Assumptions
    • The consumer is rational to maximize the satisfaction and makes a transitive or consistent choice.
    • The consumer is expected to buy any of the two commodities in a combination.
    • Consumers can rank a combination of commodities based on their satisfaction levels. Usually, the combination with the higher satisfaction level is preferred.
    • The consumer behavior remains constant in the analysis.
    • The utility is expressed in terms of ordinal numbers.
    • Assumes marginal rate of substitution to diminish.

    Criticism

    Indifference curve is said to make unrealistic assumptions about human behaviour. It is unable to explain risky choices undertaken by the consumer. It has been criticized for being an ‘old wine in a new bottle’ for it has merely rehashed the concept of diminishing marginal utility of a product in new terms.

    QUESTION 2
    WRITE SHORT NOTE ON BUDGET CONSTRAINTS AND UTILITY MAXIMIZATION

    The Budget Constraint is the boundary of the opportunity set—all possible combinations of consumption that someone can afford given the prices of goods and the individual’s income. Opportunity cost measures cost in terms of what must be given up in exchange.

    UTILITY MAXIMIZATION
    Utility maximization is the concept that individuals and organizations seek to attain the highest level of satisfaction from their economic decisions. Utility function measures the intensity to which an individual’s fulfillment is met.

    QUESTION 3
    EXTENSIVELY DISCUSS THE COBWEB THEORY

    Price changes could become magnified and the market more unstable.

    Cobweb theory and price convergence
    cobweb-theory-decreasing-volatility

    At the equilibrium point, if the demand curve is more elastic than the supply curve, we get the price volatility falling, and the price will converge on the equilibrium

    Limitations of Cobweb theory
    Rational expectations.

    The model assumes farmers base next years supply purely on the previous price and assume that next year’s price will be the same as last year (adaptive expectations). However, that rarely applies in the real world. Farmers are more likely to see it as a ‘good’ year or ‘bad year and learn from price volatility.

    Price divergence is unrealistic and not empirically seen. The idea that farmers only base supply on last year’s price means, in theory, prices could increasingly diverge, but farmers would learn from this and pre-empt changes in price.

    It may not be easy or desirable to switch supply. A potato grower may concentrate on potatoes because that is his speciality. It is not easy to give up potatoes and take to aubergines.

    Other factors affecting price. There are many other factors affecting price than a farmers decision to supply. In global markets, supply fluctuations will be minimized by the role of importing from abroad. Also, demand may vary. Also, supply can vary due to weather factors.

    Buffer stock schemes. Governments or producers could band together to limit price volatility by buying surplus

  72. Avatar MBADIHE LUCY CHIDERA says:

    NAME MBADIHE LUCY CHIDERA
    REG NO 2020/242899
    COURSE CODE ECO 201
    COURSE TITLE MICRO ECONOMICS
    INDIFFERENCE CURVE
    An indifference curve shows the locus of points representing basket of goods,all of which given the consumer equal level of satisfaction.
    ASSUMPTION OF AN INDIFFERENCE CURVE
    An indifference curve is negatively inclined and sloping downwards
    2 Both preference and inference are transitive
    3 An indifference curve is smooth and also highly indivisible
    4 it assumes that consumers act rational to maximize satisfaction
    5 consumer tastes, income and habit will remain the same through the analysis.
    CRITICISMS OF AN INDIFFERENCE CURVE
    1 The assertion that the indifference curve technique is superior to the cardinal utility analysis because it is based on fewer assumptions
    The fact that the indifference hypothesis, the more complicated of the two psychologically happens to be more economically logically affords no guarantee that is nearer to the truth
    2 indifference curve are Non-transitive
    One of the greatest critics of the indifference hypothesis is W.E Amstrong who argues that the consumer is indifferent not because he has complete knowledge of the various combinations available to him but because of his inability to judge the difference between alternative combinations
    3 The consumer is not rational
    The indifference analysis, like the utility theory assumes that the consumer act rationally. He is of a calculating mind that carries innumerable combination of different commodities in his head can substitute one for the other, compare their total utilities and make a rational choice between various combinations of goods.
    4 Two goods model unrealistic
    The two goods model on which the indifference analysis is based makes the theory unrealistic because a consumer buys not two but a large number of commodities to satisfy his innumerable want.
    BUDGET CONSTRAINT AND UTILITY MAXIMIZATION
    Budget constraint
    This is defined as the locus of points indicating various combination of goods that can be purchased if the entire money income is spent.
    A budget constraint is a constraint imposed on consumer choice by their limited budget.
    All consumers have a limit on how much they earn and therefore the limited budgets that they allocated to different goods.
    The budget constraint represents all the possible combination of two or more goods that a consumer can purchase given current prices and their budget.
    Properties of the Budget constraint
    1 The slope of the budget line reflect the trade-off between the two goods represented by the ratio of the prices of these two goods.
    2 A budget line is linear with the slope to the negative ratio of the prices of the two goods.
    The formulae for the budget constraint line is
    P1 by Q1+ P2 by Q2
    Utility Maximization
    This was propounded by an economist called Goshen, who referred to it as the Lawrence of maximum satisfaction derived by consumers. Since resources are scarce , a consumer will always want to derive maximum satisfaction from a good consumer.His ability to buy more or less of a given good will depends on the MU derived. Based on the price level, he will prefer to buy more if price is reduced and vice versa given his limited resources.

    COBWEB THEORY
    Cobweb theory is an economic model that explains why prices might be subject to periodic fluctuations in certain types of market. It describes cyclical supply and demand in a market where the amount produced must be chosen before prices are observed.
    Assumptions of cobweb theory
    1 In agricultural market, farmers have to decide how much to produce a year in advance before that know what the market price will be. Supply is inelastic in short term.
    2 A low price will mean some farmers go out of business. Also a low price will discourage farmers from growing that crop that year.
    3 Demand for agricultural goods is usually price inelastic. A fall in price only causes a smaller percent increase in demand .
    Limitations of cobweb theory
    1 rational expectations
    2 price divergence is unrealistic and not empirical seem
    3 it may not be easy or desirable to switch supply .

  73. Avatar Chukwu Daniel Nmesomachi says:

    Name: Chukwu Daniel Nmesomachi
    Reg Number:2019/249269
    Department: Business Education
    Email: nemmiechukz@gmail.com

    Answers:
    NO 1:
    An indifference curve is a curve that depicts all the product combinations that result in the same level of consumer satis. The customer favors each combination equally since they all provide the same level of satisfaction. Therefore, the indifference curve’s name.
    Usually, utility is measured through the indifference curve analysis. It provides an explanation of customer behavior using his preferences or rankings for various pairings of two commodities, such as X and Y. From the consumer’s schedule of indifference, an indifferent curve is created. The latter displays multiple ways to combine the two goods such that the consumer is uninterested in those arrangements.

    *ITS ASSUMPTIONS
    (1) A smooth, continuous indifference curve indicates that the two items are substantially divided and that changes in degree of satisfaction also occur continuously.

    (2) The customer ranks the two products according to his level of preference, indicating that he has both a “preference” and an “indifference” for them. He can indicate whether he likes one combination over another or is undecided by ranking them in order of preference.

    *CRITICISM
    Several aspects of modern economics, like indifference curves, have come under fire for being too simplistic or making irrational assumptions about how people behave. For instance, consumer preferences may vary significantly over time, making precise indifference curves meaningless.
    Others claim that it is theoretically feasible to have circular curves that are convex or concave to the origin at particular places, as well as concave indifference curves. Accurate indifference curves are no longer useful since consumer preferences might shift significantly over time.

    NO 2:
    *UTILITY MAXIMIZATION
    In a strategic plan known as utility maximization, people and businesses aim to get the most enjoyment possible out of their financial choices. For instance, management will adopt a plan of acquiring items or services that deliver the greatest advantage when a company’s resources are restricted.
    The utilitarian philosophers John Stuart Mill and Jeremy Bentham created the idea of utility maximization. Alfred Marshall, an economist from England, introduced it into economics. The cost of a product that a consumer is prepared to pay is a presumption in classical economics that approximates the greatest utility that they obtain from the acquired thing.

    *BUDGET CONSTRAINTS
    In terms of economics, a budget limitation is the total number of products you can buy with the money you have at your disposal. For example, if you are a sales professional with a N20000 budget for promotional items, this sets the upper limit on items you can purchase. How much you may purchase while staying inside your budget depends on the price of each item and the very minimum amount you require.
    The same principle of budget constraint can also be applied to time. If you are a manager, you must decide how much of your workers’ limited working time they should devote to the many tasks they must do. As some weeks include holidays or employees may take time off, the estimate may alter from week to week as your company goals change and your employees’ available time changes.

    N0 3:
    EXTENSIVELY DISCUSS THE CBWEB THEORY:
    An economic theory known as the cobweb model or cobweb theory explains why prices in specific kinds of marketplaces could experience cyclical swings. In a market where the quantity of output must be decided upon before prices are observed, it explains cyclical supply and demand. predictions about pricing among producers based on the observation of prior prices, it is assumed. 
    The supply and demand choices have a temporal lag, which is the foundation of the cobweb model. The Cobweb model may be applicable in the context of agricultural markets because there is a delay between planning and harvesting. Let’s say that due to unexpectedly severe weather, farmers bring an exceptionally modest crop of strawberries to market. High prices are the outcome of this scarcity, which is comparable to a leftward shift in the market’s supply curve. Farmers will increase their output of strawberries in comparison to other crops the next year if they anticipate that the high price conditions will persist. As a result, there will be a large supply and low pricing when they hit the market. If they anticipate that low pricing will persist, they will produce less strawberries the next year, resulting in high price again.
    The illustrations to the right provide an explanation of this procedure. The supply and demand curves cross at the equilibrium price. A bad crop in period 1 causes supply to decline to period 1, which raises prices to period 1. The period 2 supply will be greater at Q2 if manufacturers plan their period 2 output with the idea that this level will persist. So, when they try to sell all of their output, prices drop to p2. The price and quantity follow a spiral as this cycle repeats, swinging between times of low supply and high prices and then high supply and low prices.

    *REFERENCES
    https://www.toppr.com/guides/business-economics/theory-of-consumer-behavior/indifference-curve/

    https://www.economicsdiscussion.net/indifference-curves/indifference-curves-meaning-and-assumptions-with-diagram/18259

    https://corporatefinanceinstitute.com/resources/economics/utility-maximization/

    https://educativesite.com/cobweb-model-cobweb-theory/

    https://www.indeed.com/career-advice/career-development/budget-constraint#:~:text=A%20budget%20constraint%20is%20an%20economic%20term%20referring,the%20upper%20limit%20on%20items%20you%20can%20purchase.

  74. Avatar Orajiaku Chidera Princewill says:

    Orajiaku Chidera Princewill
    chideraprince44@gmail.com
    2020/242647

    1.) An indifference curve is a chart showing various combinations of two goods or commodities that leave the consumer equally well off or equally satisfied—hence indifferent—when it comes to having any combination between the two items that is shown along the curve. It connects points on a graph representing different quantities of two goods, points between which a consumer is indifferent. That is, any combinations of two products indicated by the curve will provide the consumer with equal levels of utility, and the consumer has no preference for one combination or bundle of goods over a different combination on the same curve.

    ASSUMPTIONS OF INDIFFERENCE CURVE
    1. The consumer acts rationally so as to maximize satisfaction
    2. There are 2 goods X and Y
    3. The consumer possesses complete information about the prices of goods in the market.
    4. The prices of the two goods are given
    5. The consumer’s tastes, habits, and income remain the same throughout the analysis.
    6. He prefers more of X to less of Y or more of Y to less of X.
    7. An indifference curve is always convex to the origin.
    8. An indifference curve is negatively inclined, sloping downwards.
    9. An indifference curve is smooth and continuous.
    10. The consumer arranges the two goods in a scale of preference which means he has both preference and indifference for the goods.
    11. Both preference and indifference are transitive.
    12. The consumer is in a position to order all possible combinations of the two goods.

    2.) Budget constraint refers to the maximum combined items one can afford with the income generated by the individual. Based on the money available each month, an individual must allocate their funds efficiently to purchase goods and services. Budget constraint is the total amount of items you can afford within a current budget. Budget constraint illustrates the range of choices available within that budget.

    Utility maximisation refers to the concept that individuals and firms seek to get the highest satisfaction from their economic decisions. For example, when deciding how to spend a fixed some, individuals will purchase the combination of goods/services that give the most satisfaction. Utility maximization is the concept that individuals and organizations seek to attain the highest level of satisfaction from their economic decisions.

    3.) Cobweb theory is the idea that price fluctuations can lead to fluctuations in supply which cause a cycle of rising and falling prices. The cobweb theorem is an economic model used to explain how small economic shocks can become amplified by the behaviour of producers. The amplification is, essentially, the result of information failure, where producers base their current output on the average price they obtain in the market during the previous year. This is, to some extent, a non-rational decision, given that a supply side shock between planting and harvesting (such as an unexpectedly good or bad harvest) can lead to an unexpectedly lower or higher price. This results in either a higher output or a lower output in subsequent years, and moves the market into a long-term disequilibrium position.

  75. Avatar Nwozor Esther oluchi says:

    Answer 1
    An indifference curve is a graphical representation of a combined products that gives similar kind of satisfaction to a consumer thereby making them indifferent.Every point on the indifference curve shows that an individual or a consumer is indifferent between the two products as it gives him the same kind of utility.

    Indifference Curve Assumptions
    I) The consumer is rational to maximize the satisfaction and makes a transitive or consistent choice.
    ii)The consumer is expected to buy any of the two commodities in a combination.
    iii)Consumers can rank a combination of commodities based on their satisfaction levels. iv)Usually, the combination with the higher satisfaction level is preferred.
    v) The consumer behavior remains constant in the analysis.
    vi) The utility is expressed in terms of ordinal numbers.
    vii) Assumes marginal rate of substitution to diminish.
    Indifference curve is said to make unrealistic assumptions about human behaviour. It is unable to explain risky choices undertaken by the consumer. It has been criticized for being an ‘old wine in a new bottle’ for it has merely rehashed the concept of diminishing marginal utility of a product in new terms.

    Answer 2
    a budget constraint represents all the combinations of goods and services that a consumer may purchase given current prices within his or her given income. Consumer theory uses the concepts of a budget constraint and a preference map as tools to examine the parameters of consumer choices . Both concepts have a ready graphical representation in the two-good case. The consumer can only purchase as much as their income will allow, hence they are constrained by their budget.
    Utility maximization is the concept that individuals and organizations seek to attain the highest level of satisfaction from their economic decisions. Utility function measures the intensity to which an individual’s fulfillment is met.

    Answer 3
    cobweb theory is an economic model that explains why prices might be subject to periodic fluctuations in certain types of markets. It describes cyclical supply and demand in a market where the amount produced must be chosen before prices are observed.Cobweb theory has played an essential role incorporating both features as explanations for endogeneity of price and production cycles in commodity markets. Empirical testing of cobweb models explored the possibility ‘short run’ supply and demand elasticities could produce temporary market instability.
    The cobweb cycle is characteristic of industries in which a large amount of time passes between the decision to produce something and its arrival on the market. It occurs most commonly in agriculture, because the decision of what to produce in the coming year is often based on the results of the previous year.

  76. Avatar Onuoha Chijindu says:

    Name: ONUOHA CHIJINDU
    Reg.no: 2020/249380
    Email: chijindub747@gmail.com

    Answers to Question 1.
    INDIFFERENCE CURVE
    An indifference curve is a chart showing various combinations of two goods or commodities that leave the consumer equally well off or equally satisfied, hence indifferent when it comes to having any combination between the two items that is shown along the curve. It is used in economics to describe the point where individuals have no particular preference for either one good or another based on their relative quantities.
    Example illustrating indifferent curve; if you like both meatpie and eggroll, you may be indifferent to buying either 15 meatpies and no eggroll, 30 meatpies and no eggroll or some combination of the two, for example, 16 meatpies and 20 eggrolls. Either combination provides the same utility.
    The slope of the indifference curve is known as the marginal rate of substitution (MRS).
    The formula used in economics for constructing an indifference curve is: ????(????, ????)=????
    where: c stands for the utility level achieved on the curve and is constant. t and y are the quantities of two different goods, t and y.

    SOME ASSUMPTIONS OF INDIFFERENCE CURVE
    1. Each indifference curve is typically convex to the origin, and no two indifference curves ever intersect.
    2. As income increases, an individual will typically shift their consumption level because they can afford more commodities, with the result that they will end up on an indifference curve that is farther from the origin, hence better off.
    3. Indifference curve analysis typically assumes that all other variables are constant or stable.

    SOME CRITICISMS AND COMPLICATIONS OF INDIFFERENCE CURVE
    1. Indifference curves, like many aspects of contemporary economics, have been criticized for oversimplifying or making unrealistic assumptions about human behavior.
    2. It is theoretically possible to have concave indifference curves or even circular curves that are either convex or concave to the origin at various points.

    Answers to Question 2.
    BUDGET CONSTRAINT
    Budget constraint refers to the maximum combined items one can afford with the income generated by the individual. Based on the money available each month, an individual must allocate their funds efficiently to purchase goods and services.
    In economics, a budget constraint represents all the combinations of goods and services that a consumer may purchase given current prices within his or her given income. To break this down in a simple way, imagine having only two items that can be purchased with the budget: golden mourn and t-shirts. The budget can be spent entirely on golden mourn, entirely on t-shirts, or some combination of both. The quantity of either good that can be purchased is determined by the price of the good, as well as the quantity purchased, and the price of the other good. The formulae for budget constraint is: P1×Q1+P2×Q2 = 1

    UTILITY MAXIMISATION
    Utility maximisation is a strategic scheme whereby individuals and companies seek to achieve the highest level of satisfaction from their economic decisions. For example, when a company’s resources are limited, management will implement a plan of purchasing goods or services that provides the maximum benefit. The condition for maximising utility is: MUA/PA = MUB/PB where: MU is marginal utility and P is price.

    Answers to Question 3.
    COBWEB THEORY
    The theory in economics that defines the subjective fluctuations of price in the market is referred as the Cobweb theory. The Cobweb theory explains the fact that changes in the price lead to fluctuation in supply and further cause a cycle of rising and falling price. Cobweb theory is the idea that price fluctuations can lead to fluctuations in supply which cause a cycle of rising and falling prices.
    Example illustrating cobweb theory: Housing is very inelastic and subject to booms and bust. In response to the housing boom in Ireland, supply increased. But, the price collapsed, leading to a big fall in the building of new housing. Tamari, (1981) argued there was evidence of cobweb nature of the Israeli housing market.

    SOME ASSUMPTIONS OF COBWEB THEORY
    1. In a simple cobweb model, we assume there is an agricultural market where supply can vary due to variable factors, such as the weather.
    2. In an agricultural market, farmers have to decide how much to produce a year in advance before they know what the market price will be. (supply is price inelastic in short-term)
    3. A key determinant of supply will be the price from the previous year.
    4. A low price will mean some farmers go out of business. Also, a low price will discourage farmers from growing that crop in the next year.
    5. Demand for agricultural goods is usually price inelastic (a fall in price only causes a smaller % increase in demand)

    COBWEB THEORY AND PRICE DIVERGENCE
    Price will diverge from the equilibrium when the supply curve is more elastic than the demand curve, (at the equilibrium point).

    COBWEB THEORY AND PRICE CONVERGENCE
    At the equilibrium point, if the demand curve is more elastic than the supply curve, we get the price volatility falling, and the price will converge on the equilibrium.

    LIMITATIONS OF COBWEB THEORY
    1. Rational expectations: The model assumes farmers base next years supply purely on the previous price and assume that next year’s price will be the same as last year (adaptive expectations). However, that rarely applies in the real world. Farmers are more likely to see it as a ‘good’ year or ‘bad’ year and learn from price volatility.
    2. Price divergence is unrealistic and not empirically seen: The idea that farmers only base supply on last year’s price means, in theory, prices could increasingly diverge, but farmers would learn from this and pre-empt changes in price.
    3. It may not be easy or desirable to switch supply: A potato grower may concentrate on potatoes because that is his speciality. It is not easy to give up potatoes and take to aubergines.
    4. Other factors affecting price: There are many other factors affecting price than a farmers decision to supply. In global markets, supply fluctuations will be minimised by the role of importing from abroad. Also, demand may vary. Also, supply can vary due to weather factors.
    5. Buffer stock schemes. Governments or producers could band together to limit price volatility by buying surplus.

  77. Avatar Ezeh Clara Somtochukwu says:

    1. A. Indifference curve shows the various commodity combinations which give the sum level of satisfaction. Therefore the consumer is indifferent to any combination of two combination of two commodities if he is she has two make a choice between them.

    1.B. Assumptions of the indifference curve.
    B. i. The consumer is in position to order all combinations of two goods.
    B. ii. The consumer has complete information about the prices of goods in the market.
    B. iii. The consumer is rational, since he/she aims to maximise satisfaction.
    B. iv. Indifference curve is convex to the origin
    B. v. An indifference curve is negatively inclined, i.e downward sloping.

    1. C. Criticisms of the indifference curve.
    C. i. It’s assumption are unrealistic.
    C. ii. It fails to explain risky choice, such as
    C. iii. It makes absurd and unrealistic combinations
    C. iv. Indifference curve analysis is based on hypothetical combinations, it does not provide behaviouristic explanation for consumer behaviour.
    C. v. Indifference curve analysis is based on weak ordering hypothesis, a consumer can be indifferent between a larger number of combinations.

    2. A. A budget constraint represents all the combinations of goods and services that a consumer may purchase given current prices within his or her given income.
    2. B. Utility maximisation, also known as consumer equilibrium, is a point where a consumer derives maximum satisfaction when his or her marginal utility equates the price of the commodity. At this point marginal utility is equal to zero.

    3. Cobweb theory is the idea that price fluctuations can lead to fluctuations in supply which cause a cycle of rising and falling prices.
    In a simple cobweb model, we assume there is an agricultural market where supply can vary due to variable factors, such as the weather.
    Cobweb models are easily explained using the example used by Kaldor in 1934: agricultural markets. Let’s say weather conditions aren’t optimal during a year, which causes the quantity supplied of a certain crop to be quite small. This excessive demand, or shortage, causes prices to be unusually high. When farmers realise how high prices are, they’ll plant more in order to supply more the following year. However, supply is so high the following year that prices decrease to meet consumers’ demand. Since prices are low, farmers decide to lower their supply the following year, resulting in high prices again. This process will go on until an equilibrium is reached after a few fluctuations. This unique equilibrium is reached because in this first scenario, the elasticity of the demand curve, in absolute terms, is higher than the elasticity of the supply curve, which implies a convergent fluctuation.

  78. Avatar Agbo Gift Obianuju says:

    Agbo Gift Obianuju
    2020/243000
    agbogift2003@gmail.com

    1) An indifference curve is a graphical representation of a combination of two goods that offers the consumer equal satisfaction on consumption, thereby making the consumer indifferent. The consumer derives the same utility along the curve, for any combination. The concept of indifference curve was developed by British Economist Francis Y Edgeworth. It is a tool of microeconomics to demonstrate consumer preferences and the limitations of budget. Indifference curve analysis assumes that all other variables are constant and stable. The slope of the indifference curve is known are the marginal rate of substitution. The marginal rate of substitution is the rate at which the consumer is willing to give up one good for another.

    2)Given the goal of consumers is to maximize utility given their budget constraints, they seek that combination of goods that allows them to reach the highest indifference curve given their budget constraint. This occurs where the indifference curve is tangent to the budget constraint

    3)The cobweb model or cobweb theory is an economic model that explains why prices might be subject to periodic fluctuations in certain types of markets. It describes cyclical supply and demand in a market where the amount produced must be chosen before prices are observed. Producers’ expectations about prices are assumed to be based on observations of previous prices. Nicholas Kaldor analyzed the model in 1934, coining the term “cobweb theorem” (see Kaldor, 1938 and Pashigian, 2008), citing previous analyses in German by Henry Schultz and Umberto Ricci.

  79. Avatar Dickson Edith Ezinne says:

    Name: Dickson Ezinne Edith
    Reg no: 2020/242619
    Email: ejadickson952@gmail.com
    Dept: Economics major

    1.The major assumptions of the indifference curve

    (a.) The consumer are assumed to be rational and are supposed to maximize their utility concerning the commodity bundle chosen.
    (b.) The indifference curve assumes the income of the consumers to remain constant for a certain period, followed by the taste and habits of the consumers.
    (c.) There are assumed to be two commodities in the commodity bundle preferred by the consumer.
    (d.) The consumers have complete information about the commodities available and their respective prices, which are given.

    Criticisms of Indifference Curve Analysis:

    (a.) The consumer acts rationally so as to maximise satisfaction.
    (b.) The consumer possesses complete information about the prices of the goods in the market.
    (c.) There are two goods X and Y.

    2. A budget constraint is a constraint imposed on consumer choice by their limited budget.

    All consumers have a limit on how much they earn and, therefore, the limited budgets that they allocate to different goods. However, limited incomes are the primary cause of budget constraints. The effects of the budget constraint are evident in the fact that consumers can’t just buy everything they want and are induced into making choices, according to their preferences, between the alternatives.

    A utility maximization model is a representation of consumer behavior that makes assumptions about how customers spend their money and how much utility a company might spend on the product or service. With utility maximization, companies assume their customers make rational purchases based on the value a product might bring.

    3. Cobweb theory is the idea that price fluctuations can lead to fluctuations in supply which cause a cycle of rising and falling prices.

    In a simple cobweb model, we assume there is an agricultural market where supply can vary due to variable factors, such as the weather.

    Assumptions of Cobweb theory;
    – In an agricultural market, farmers have to decide how much to produce a year in advance – before they know what the market price will be. (supply is price inelastic in short-term)
    -The price of supply from the previous year is a key determinant.
    -A low price will mean some farmers go out of business. Also, a low price will discourage farmers from growing that crop in the next year.
    -Usually demand for agricultural goods is price inelastic (a fall in price only causes a smaller % increase in demand)

    In Cobweb Theory, the price of the market could fluctuate high or low as suppliers respond to past prices.

  80. Avatar OKOH CHIBUEZE JOSHUA says:

    NAME:OKOH CHIBUEZE JOSHUA
    REG. NUMBER: 20202/250139
    DEPARTMENT: ECONOMICS

    1) Briefly discuss the indifference curve(including its assumptions and criticisms).
    An indifference curve is a graphical representation of a combined products that gives similar kind of satisfaction to a consumer thereby making them indifferent.Every point on the indifference curve shows that an individual or a consumer is indifferent between the two products as it gives him the same kind of utility. An indifference schedule is a list of combinations of two goods, the list being so arranged that the consumer is indifferent to the combinations, preferring none of the other. A standard indifference curve analysis operates using a two dimensional chart.
    Following are the features of indifference curve
    (a) INDIFFERENCE CURVE ALWAYS SLOPES DOWNWARDS FROM LEFT TO RIGHT
    An indifference curve has a negative slope, i.e. it slopes downward from left to right.
    Reason: If a consumer decides to have one more unit of a commodity
    (say apples), quantity of another good (say oranges) must fall so that the total satisfaction (utility) remains same.
    (b) INDIFFERENCE CURVE IS ALWAYS CONVEX TO THE ORIGIN
    IC is strictly Convex to origin i.e. MRSxy is always diminishing
    Reason: Due to the law of diminishing marginal utility a consumer is always willing to sacrifice lesser units of a commodity for every additional unit of another good.
    (c) HIGHER INDIFFERENCE CURVE REPRESENTS
    HIGHER LEVEL OF SATISFACTION
    Higher indifference curve represents larger bundles of goods i.e. bundles which contain more of both or more of at least one.
    It is assumed that consumer’s preferences are monotonic i.e. he always prefers larger bundle as it gives him higher satisfaction.
    ASSUMPTIONS OF INDIFFERENCE CURVE
    (1) The consumer acts rationally so as to maximise satisfaction.

    (2) There are two goods X and Y.

    (3) The consumer possesses complete information about the prices of the goods in the market.

    4) The prices of the two goods are given.

    (5) The consumer’s tastes, habits and income remain the same throughout the analysis.

    (6) He prefers more of X to less of У or more of Y to less of X.

    (7) An indifference curve is negatively inclined sloping downward.

    8) An indifference curve is always convex to the origin.

    (9) An indifference curve is smooth and continuous which means that the two goods are highly divisible and those levels of satisfaction also change in a continuous manner.

    (10) The consumer arranges the two goods in a scale of preference which means that he has both ‘preference’ and ‘indifference’ for the goods. He is supposed to rank them in his order of preference and can state if he prefers one combination to the other or is indifferent between them.

    (11) Both preference and indifference are transitive. It means that if combination A is preferable to В, and В to C, then A is preferable to C. Similarly, if the consumer is indifferent between combinations A and B, and В and C, then he is indifferent between A and C. This is an important assumption for making consistent choices among a large number of combinations.

    CRITICISMS OF INDIFFERENCE CURVE
    1. Cardinal Measurement implicit in l.C. Technique:
    Prof. Robertson further points out that the cardinal measurement of utility is implicit in the indifference hypothesis when we analyse substitutes and complements. It is assumed in their case that the consumer is capable of regarding a change in one situation to be preferable to another change in another situation. To explain it, Robertson takes three situations A, В and C, as shown in Figure I2.38. Suppose the consumer compares one change in situation AB with another change in situation BC.
    He prefers the change AB more highly than the change BC. If another point D is taken, then he prefers the change AD as highly as the change DC. This, according to Robertson, is equivalent to saying that the space AC is twice the space AD and we are back in the world of cardinal measurement of utility. Thus when changes in two situations are compared as in the case of substitutes and complements, it leads to the cardinal measurement of utility.
    2. Midway House:
    Indifference curves are hypothetical because they are not subject to direct measurements. Although consumer choices are grouped in combinations on the ordinal scale, no operational method has been devised so far to measure the exact shape of an indifference curve. This stems from the fact that ‘the peculiar logical structure of the theory has low empiric content.’ The failure of Hicks to present a scientific approach to the consumer’s behaviour led Schumpeter to characterize the indifference analysis as a ‘midway house;’. He remarked: “From a practical standpoint we are not much better off when drawing purely imaginary indifference curves than we are when speaking of purely imaginary utility functions.”

    3. Fails to Explain the Observed Behaviour of the Consumer:
    Knight argues that the observed market behaviour of the consumer cannot be explained objectively. It is a mistake not to base the analysis of consumer’s demand on the cardinal utility theory. For instance, the income and substitution effects cannot be distinguished on the basis of mere observation. In fact, what we observe is the composite price effect. Similarly, the theory of complementaries and substitutes based on the principle of marginal rate of substitution cannot be discovered from the market data. Samuelson has explained the observed behaviour of the consumer in his Revealed Preference Theory.
    4. Indifference Curves are Non-transitive:
    One of the greatest critics of the indifference hypothesis is W.E. Armstrong who argues that the consumer is indifferent not because he has complete knowledge of the various combinations available to him but because of his inability to judge the difference between alternative combinations. He further opines that any two points on an indifference curve are the points of indifference not because they are of iso-utility but of zero-utility difference.
    It is only when utility difference is zero that the relation between any two or more points on an indifference curve is symmetrical. Armstrong’s arguments can be explained with the help of Figure 12.39 where on I1 curve points P, Q, R and S represent different combinations of the goods X and Y. The points P and Q, R and S are so drawn that the difference between each pair is imperceptible.
    Points P and Q or R and S will be of iso-utility only if utility difference between them is zero. But the consumer cannot be indifferent between P and R because the difference of total utility between P and R is perceptible. So the consumer will prefer P to R, or R to P in the reverse case. This shows that the points on an indifference curve are not transitive.”If indifference is not transitive”, observes Armstrong, “the text book diagrams with their masses of non-intersecting indifference curves do not make sense.” Thus the very notion of ‘indifference’ appears to be of doubtful validity.

    5. The Consumer is not Rational:

    The indifference analysis, like the utility theory, assumes that the consumer acts rationally. He is of a calculating mind who carries innumerable combinations of different commodities in his head, can substitute one for the other, compare their total utilities and make a rational choice between various combinations of goods. This is too much to expect of the consumer who has to act under various social, economic and legal constraints.

    6. Combinations are not based on any Principle:

    Since the combinations are made irrespective of the nature of goods, they often become absurd. How many of us buy 10 pairs of shoes and 8 pants, 6 radios and 5 watches or 4 scooters and 3 cars? Such combinations do not possess any significance for the consumer.

    7. Limited Analysis of Consumer’s Behaviour:

    Further, the assumption that the consumer buys more units of the same good when its price falls is unwarranted. Leaving aside the case of inferior goods, he may not like to have more units of a good because he is under the influence of “conspicuous consumption” and wants to display or to have variety. Changes in the tastes of the consumer or his indulging in speculative purchases also affects his preference for the goods. These exceptions make the indifference analysis a limited study of consumer behaviour.

    8. Failure to consider some other Factors concerning Consumer Behaviour:
    The indifference curve analysis does not consider speculative demand, interdependence of the preferences of consumers in the form of snob, Veblen and Bandwagon effects, the effects of advertising, of stocks, etc.

    9. Two-Goods Model Unrealistic:
    Again, the two-goods model on which the indifference analysis is based makes the theory unrealistic because a consumer buys not two but a large number of commodities to satisfy his innumerable wants. But the difficulty is that in the case of more than three goods geometry fails and economists will have to depend upon complicated mathematical solutions for analysing the problem of consumer behaviour.

    10. Fails to Explain Consumer’s Behaviour in Choices Involving Risk or Uncertainty:
    Another serious criticism levelled against the preference hypothesis is that it fails to explain consumer behaviour when the individual is faced with choices involving risk or uncertainty of expectations. If there are three situations, A, В and C, the consumer prefers A to В and С to A and out of which A is certain but the chances of occurring В or С are 50-50 . In such a situation, the consumer’s preference for С over A can only be measured quantitatively.

    11. Based on Unrealistic Assumption of Perfect Competition:
    The indifference curve technique is based on the unrealistic assumptions of perfect competition and homogeneity of goods whereas, in reality, the consumer is confronted with differentiated products and monopolistic competition. Since the indifference hypothesis is based on unwarranted assumptions, it becomes unrealistic.

    12. All Commodities are not Divisible:
    The indifference curve analysis becomes ridiculous when it is assumed that goods are divisible in small units. Commodities like watches, cars, radios, etc. are indivisible. To have 3½ watches or 2½ cars or 1½ radios in any combination is unrealistic. When indivisible goods are taken in a combination, they cannot be substituted without dividing them. Thus the consumer cannot get maximum satisfaction from the use of indivisible goods.

    Despite these criticisms, the indifference curve technique is still regarded superior to the Marshallian introspective cardinalism.

    2) Write short note on Budget constraint and utility maximization
    A budget constraint is an economic term referring to the combined amount of items you can afford within the amount of income available to you. For example, if you are a sales professional with a $1,000 budget for promotional items, this sets the upper limit on items you can purchase. The cost of each item and the minimum quantity you need would determine how many you can buy within your budget.
    The same principle of budget constraint can also be applied to time. If you are a manager, your employees only have a certain number of hours in a workday, which means you need to determine how much of their time they should spend on the various things they need to accomplish. The calculation may vary from week to week as your business priorities change and your employees’ available time adjusts since some weeks include holidays or employees might take time off.

    UTILITY MAXIMIZATION
    Utility maximization is a strategic scheme whereby individuals and companies seek to achieve the highest level of satisfaction from their economic decisions. For example, when a company’s resources are limited, management will implement a plan of purchasing goods or services that provides the maximum benefit. The concept of utility maximization was developed by the utilitarian philosophers Jeremy Bentham and John Stuart Mill. It was incorporated into economics by English economist Alfred Marshall. An assumption in classical economics is that the cost of a product that a consumer is willing to pay is an approximation of the maximum utility that they receive from the purchased good. The combination of goods or services that maximize utility is determined by comparing the marginal utility of two choices and finding the alternative with the highest total utility within the budget limit. The decision is influenced by the option that produces a higher level of satisfaction. This explains how companies and individuals develop consumption habits.

    The consumer may consider purchasing more of one item and less of another. Through maximizing utility, the consumer will buy an item that produces the greatest marginal utility with the least amount of spending.

    For example, if product ‘A’ comes with twice more marginal utility than product ‘B,’ that means product ‘A’ is providing more marginal utility per dollar than ‘B.’ As a result, the consumer may decide to buy more of product ‘A.’

    3) Extensively discuss the Cobweb theory.

    Cobweb theory is the idea that price fluctuations can lead to fluctuations in supply which cause a cycle of rising and falling prices.

    In a simple cobweb model, we assume there is an agricultural market where supply can vary due to variable factors, such as the weather.

    Assumptions of Cobweb theory

    In an agricultural market, farmers have to decide how much to produce a year in advance – before they know what the market price will be. (supply is price inelastic in short-term)
    A key determinant of supply will be the price from the previous year.
    A low price will mean some farmers go out of business. Also, a low price will discourage farmers from growing that crop in the next year.
    Demand for agricultural goods is usually price inelastic (a fall in price only causes a smaller % increase in demand)

    If there is a very good harvest, then supply will be greater than expected and this will cause a fall in price.
    However, this fall in price may cause some farmers to go out of business. Next year farmers may be put off by the low price and produce something else. The consequence is that if we have one year of low prices, next year farmers reduce the supply.
    If supply is reduced, then this will cause the price to rise.
    If farmers see high prices (and high profits), then next year they are inclined to increase supply because that product is more profitable.
    In theory, the market could fluctuate between high price and low price as suppliers respond to past prices.

    Cobweb theory and price divergence

    Price will diverge from the equilibrium when the supply curve is more elastic than the demand curve, (at the equilibrium point)

    cobweb-increasing-volatility-price

    If the slope of the supply curve is less than the demand curve, then the price changes could become magnified and the market more unstable.

    Cobweb theory and price convergence

    cobweb-theory-decreasing-volatility

    At the equilibrium point, if the demand curve is more elastic than the supply curve, we get the price volatility falling, and the price will converge on the equilibrium

    Limitations of Cobweb theory

    Rational expectations. The model assumes farmers base next years supply purely on the previous price and assume that next year’s price will be the same as last year (adaptive expectations). However, that rarely applies in the real world. Farmers are more likely to see it as a ‘good’ year or ‘bad year and learn from price volatility.

    Price divergence is unrealistic and not empirically seen. The idea that farmers only base supply on last year’s price means, in theory, prices could increasingly diverge, but farmers would learn from this and pre-empt changes in price.

    It may not be easy or desirable to switch supply. A potato grower may concentrate on potatoes because that is his speciality. It is not easy to give up potatoes and take to aubergines.

    Other factors affecting price. There are many other factors affecting price than a farmers decision to supply. In global markets, supply fluctuations will be minimized by the role of importing from abroad. Also, demand may vary. Also, supply can vary due to weather factors.

    Buffer stock schemes. Governments or producers could band together to limit price volatility by buying surplus

    Possible examples of Cobweb theory

    Housing

    Housing is very inelastic and subject to booms and bust. In response to the housing boom in Ireland, supply increased. But, the price collapsed, leading to a big fall in the building of new housing. Tamari, (1981) argued there was evidence of cobweb nature of the Israeli housing market.

  81. Avatar Chidiebere Favour Chiwemmeri says:

    Name: Chidiebere Favour Chiwemmeri.
    Reg No: 2020/242578.
    Department: Economics.
    Level: 200.
    Course: Eco201 online assignment.

    Qs1. Briefly discuss the indifference curve (including its assumptions and criticisms).

    Ans. Indifference curve is a curve showing the different combinations of two commodities in different quantities that offer the same level of satisfaction or utility to the consumer. It shows that a consumer is indifferent meaning that the consumer doesn’t prefer one good over another but combines the both of them in different quantities to suit his satisfaction.

    The slope of the indifference curve that is, the marginal rate of substitution is always convex to the origin. It supports the ordinal approach to utility by stating that utility can be ranked at various levels of consumption.

    In the case where there’s an increase in the indifference curve, causing it to shift continually to the right, producing three different indifference curves I1, I2 and I3, the last indifference curve formed that is I3 is the curve where the consumer derives the highest level of satisfaction.

    The assumptions of the indifference curve states that there are only two goods in the market. Goods X and goods Y. It also assumes that the consumer has perfect knowledge of the prices of goods in the market. It assumes that the prices of the two goods are given. It also assumes that the consumer arranges the two goods in a scale of preference.

    The indifference curve further assumes that the consumer acts rationally to maximize satisfaction and that the consumer should prefer more of good X to good Y or vice versa.
    The consumer’s taste, habit and income should remain constant through out the analysis and not two indifference curves should intersect each other.

    The indifference curve theory has further been criticized for its unrealistic economic assumptions. For example, there are more than two goods available in the market and it is impossible for consumers to have perfect knowledge of the prices of goods and services in a real market setting. Also, the consumer’s income, taste and habit are prone to changes and are not static.

    Finally, there’s no real market state as a perfect competition and consumers donkt act rationally at times.

    Qs2. Write short note on budget constraints and utility maximization.

    Ans. Budget Constraints: This is the boundary of the consumer bundle that is, all possible combinations of consumption that a comsumer can afford given the prices of goods and the consumer’s income.

    A budget constraint occurs when a consumer is limited in consumption patterns by a certain income. It is based in the principle of scarcity and trade-offs. All consumers have a limit on how much they earn and, therefore, the principle of scarcity plays in.
    Ultimately, limited incomes are the primary cause of budget constraints. The effects of the budget constraint are evident in the fact that consumers can’t just buy everything they want and are induced into making choices according to their preferences, between the alternatives. And that implies the principle of trade-off.

    To conceptualize this in a simple way, let’s imagine a student having only two items that can be purchased with in his budget: a pen and a school bag. The budget can be spent entirely on pen, entirely on t-shirts, or some combination of both. The quantity of either good that can be purchased is determined by the price of the good, the quantity purchased, and the price of the other good.

    Mathematically, a budget constraint in the example with only two goods can be expressed as follows: (P1 x Q1) + (P2 x Q2) = M
    Where P1 is the price of the first good, P2 is the price of the second good, Q1 is the quantity of the first good, Q2 is the quantity of the second good, and M is the money or income available. This equation illustrates that the quantities of goods 1 and 2 to be purchased are determined by the price and the constraints imposed by the money available.

    Utility Maximization: another word for “Utility” in economics is “Satisfaction.” It is the level of satisfaction a comsumer derives from consuming a particular commodity.
    Utility maximization is a strategic scheme whereby individuals and companies seek to achieve the highest level of satisfaction from their economic decisions.
    For example, when a company’s resources are limited, management will implement a plan of purchasing goods or services that provides the maximum benefit.

    The concept of utility maximization was developed by the utilitarian philosophers Jeremy Bentham and John Stuart Mill. It was incorporated into economics by English economist Alfred Marshall. An assumption in classical economics is that the cost of a product that a consumer is willing to pay is an approximation of the maximum utility that they receive from the purchased good.

    In order to understand utility maximization, the combination of goods or services that maximize utility is determined by comparing the marginal utility of two choices and finding the alternative with the highest total utility within the consumer’s budget limit. The decision is influenced by the option that produces a higher level of satisfaction. This explains how companies and individuals develop consumption habits.

    The consumer may consider purchasing more of one item and less of another. Through maximizing utility, the consumer will buy an item that produces the greatest marginal utility with the least amount of spending.

    For example, if product ‘A’ comes with twice more marginal utility than product ‘B,’ that means product ‘A’ is providing more marginal utility than product ‘B.’ As a result, the consumer may decide to buy more of product ‘A.’

    A consumer is said to have maximized his or her utility for two products A and B when the marginal utility of product A when divided by its price equals the marginal utility of product B when divided by its price.

    Mathematically, utility maximization is expressed as: MUA/PA= MUB/PB. Where MUA is the marginal utility of product A and PA the price of product A. MUB is the marginal utility of product B and PB is the price of product B

    Qs3. Extensively discuss the Cobweb theory.

    Ans. The cobweb theorem is an economic model used to explain how small economic shocks can become amplified by the behaviour of producers. This amplification is, essentially, the result of information failure, where producers base their current output on the average price they obtain in the market during the previous year.

    It describes cyclical supply and demand in a market where the amount of a commodity produced must be chosen based on the price of that commodity for the previous year before prices of the current year are observed.

    Cobweb theory is the idea that price fluctuations in the previous year can lead to fluctuations in supply in the current year which cause a cycle of rising and falling prices.
    This is, to some extent, a non-rational decision, given that a supply side shock between planting and harvesting (such as an unexpectedly good or bad harvest) can lead to an unexpectedly lower or higher price. This results in either a higher output or a lower output in subsequent years, and moves the market into a long-term disequilibrium position.

    Nicholas Kaldor, in 1934, analyzed the model and coined the term “cobweb theorem” from his claims that the theory acts like a cobweb.
    In a simple cobweb model, we assume that there is an agricultural market where supply can vary due to variable factors, such as the weather.

    The cobweb theory assumes that farmers in an agricultural market, have to decide how much to produce a year in advance before they know what the market price will be.

    It also assumes that supply is price inelastic in short-term. The price from the previous year is also a key determinant of supply. A low price will mean some farmers go out of business. Also, a low price will discourage farmers from growing that crop in the next year.

    The cobweb theory also holds on the assumption that there is a perfect competition in which all producers are not able to influence prices. Demand for agricultural goods in this theory is usually price inelastic (a fall in price only causes a smaller percentage increase in demand).

  82. Avatar OKOH CHIBUEZE JOSHUA says:

    1) Briefly discuss the indifference curve(including its assumptions and criticisms).
    An indifference curve is a graphical representation of a combined products that gives similar kind of satisfaction to a consumer thereby making them indifferent.Every point on the indifference curve shows that an individual or a consumer is indifferent between the two products as it gives him the same kind of utility. An indifference schedule is a list of combinations of two goods, the list being so arranged that the consumer is indifferent to the combinations, preferring none of the other. A standard indifference curve analysis operates using a two dimensional chart.
    Following are the features of indifference curve
    (a) INDIFFERENCE CURVE ALWAYS SLOPES DOWNWARDS FROM LEFT TO RIGHT
    An indifference curve has a negative slope, i.e. it slopes downward from left to right.
    Reason: If a consumer decides to have one more unit of a commodity
    (say apples), quantity of another good (say oranges) must fall so that the total satisfaction (utility) remains same.
    (b) INDIFFERENCE CURVE IS ALWAYS CONVEX TO THE ORIGIN
    IC is strictly Convex to origin i.e. MRSxy is always diminishing
    Reason: Due to the law of diminishing marginal utility a consumer is always willing to sacrifice lesser units of a commodity for every additional unit of another good.
    (c) HIGHER INDIFFERENCE CURVE REPRESENTS
    HIGHER LEVEL OF SATISFACTION
    Higher indifference curve represents larger bundles of goods i.e. bundles which contain more of both or more of at least one.
    It is assumed that consumer’s preferences are monotonic i.e. he always prefers larger bundle as it gives him higher satisfaction.
    ASSUMPTIONS OF INDIFFERENCE CURVE
    (1) The consumer acts rationally so as to maximise satisfaction.

    (2) There are two goods X and Y.

    (3) The consumer possesses complete information about the prices of the goods in the market.

    4) The prices of the two goods are given.

    (5) The consumer’s tastes, habits and income remain the same throughout the analysis.

    (6) He prefers more of X to less of У or more of Y to less of X.

    (7) An indifference curve is negatively inclined sloping downward.

    8) An indifference curve is always convex to the origin.

    (9) An indifference curve is smooth and continuous which means that the two goods are highly divisible and those levels of satisfaction also change in a continuous manner.

    (10) The consumer arranges the two goods in a scale of preference which means that he has both ‘preference’ and ‘indifference’ for the goods. He is supposed to rank them in his order of preference and can state if he prefers one combination to the other or is indifferent between them.

    (11) Both preference and indifference are transitive. It means that if combination A is preferable to В, and В to C, then A is preferable to C. Similarly, if the consumer is indifferent between combinations A and B, and В and C, then he is indifferent between A and C. This is an important assumption for making consistent choices among a large number of combinations.

    CRITICISMS OF INDIFFERENCE CURVE
    1. Cardinal Measurement implicit in l.C. Technique:
    Prof. Robertson further points out that the cardinal measurement of utility is implicit in the indifference hypothesis when we analyse substitutes and complements. It is assumed in their case that the consumer is capable of regarding a change in one situation to be preferable to another change in another situation. To explain it, Robertson takes three situations A, В and C, as shown in Figure I2.38. Suppose the consumer compares one change in situation AB with another change in situation BC.
    He prefers the change AB more highly than the change BC. If another point D is taken, then he prefers the change AD as highly as the change DC. This, according to Robertson, is equivalent to saying that the space AC is twice the space AD and we are back in the world of cardinal measurement of utility. Thus when changes in two situations are compared as in the case of substitutes and complements, it leads to the cardinal measurement of utility.
    2. Midway House:
    Indifference curves are hypothetical because they are not subject to direct measurements. Although consumer choices are grouped in combinations on the ordinal scale, no operational method has been devised so far to measure the exact shape of an indifference curve. This stems from the fact that ‘the peculiar logical structure of the theory has low empiric content.’ The failure of Hicks to present a scientific approach to the consumer’s behaviour led Schumpeter to characterize the indifference analysis as a ‘midway house;’. He remarked: “From a practical standpoint we are not much better off when drawing purely imaginary indifference curves than we are when speaking of purely imaginary utility functions.”

    3. Fails to Explain the Observed Behaviour of the Consumer:
    Knight argues that the observed market behaviour of the consumer cannot be explained objectively. It is a mistake not to base the analysis of consumer’s demand on the cardinal utility theory. For instance, the income and substitution effects cannot be distinguished on the basis of mere observation. In fact, what we observe is the composite price effect. Similarly, the theory of complementaries and substitutes based on the principle of marginal rate of substitution cannot be discovered from the market data. Samuelson has explained the observed behaviour of the consumer in his Revealed Preference Theory.
    4. Indifference Curves are Non-transitive:
    One of the greatest critics of the indifference hypothesis is W.E. Armstrong who argues that the consumer is indifferent not because he has complete knowledge of the various combinations available to him but because of his inability to judge the difference between alternative combinations. He further opines that any two points on an indifference curve are the points of indifference not because they are of iso-utility but of zero-utility difference.
    It is only when utility difference is zero that the relation between any two or more points on an indifference curve is symmetrical. Armstrong’s arguments can be explained with the help of Figure 12.39 where on I1 curve points P, Q, R and S represent different combinations of the goods X and Y. The points P and Q, R and S are so drawn that the difference between each pair is imperceptible.
    Points P and Q or R and S will be of iso-utility only if utility difference between them is zero. But the consumer cannot be indifferent between P and R because the difference of total utility between P and R is perceptible. So the consumer will prefer P to R, or R to P in the reverse case. This shows that the points on an indifference curve are not transitive.”If indifference is not transitive”, observes Armstrong, “the text book diagrams with their masses of non-intersecting indifference curves do not make sense.” Thus the very notion of ‘indifference’ appears to be of doubtful validity.

    5. The Consumer is not Rational:

    The indifference analysis, like the utility theory, assumes that the consumer acts rationally. He is of a calculating mind who carries innumerable combinations of different commodities in his head, can substitute one for the other, compare their total utilities and make a rational choice between various combinations of goods. This is too much to expect of the consumer who has to act under various social, economic and legal constraints.

    6. Combinations are not based on any Principle:

    Since the combinations are made irrespective of the nature of goods, they often become absurd. How many of us buy 10 pairs of shoes and 8 pants, 6 radios and 5 watches or 4 scooters and 3 cars? Such combinations do not possess any significance for the consumer.

    7. Limited Analysis of Consumer’s Behaviour:

    Further, the assumption that the consumer buys more units of the same good when its price falls is unwarranted. Leaving aside the case of inferior goods, he may not like to have more units of a good because he is under the influence of “conspicuous consumption” and wants to display or to have variety. Changes in the tastes of the consumer or his indulging in speculative purchases also affects his preference for the goods. These exceptions make the indifference analysis a limited study of consumer behaviour.

    8. Failure to consider some other Factors concerning Consumer Behaviour:
    The indifference curve analysis does not consider speculative demand, interdependence of the preferences of consumers in the form of snob, Veblen and Bandwagon effects, the effects of advertising, of stocks, etc.

    9. Two-Goods Model Unrealistic:
    Again, the two-goods model on which the indifference analysis is based makes the theory unrealistic because a consumer buys not two but a large number of commodities to satisfy his innumerable wants. But the difficulty is that in the case of more than three goods geometry fails and economists will have to depend upon complicated mathematical solutions for analysing the problem of consumer behaviour.

    10. Fails to Explain Consumer’s Behaviour in Choices Involving Risk or Uncertainty:
    Another serious criticism levelled against the preference hypothesis is that it fails to explain consumer behaviour when the individual is faced with choices involving risk or uncertainty of expectations. If there are three situations, A, В and C, the consumer prefers A to В and С to A and out of which A is certain but the chances of occurring В or С are 50-50 . In such a situation, the consumer’s preference for С over A can only be measured quantitatively.

    11. Based on Unrealistic Assumption of Perfect Competition:
    The indifference curve technique is based on the unrealistic assumptions of perfect competition and homogeneity of goods whereas, in reality, the consumer is confronted with differentiated products and monopolistic competition. Since the indifference hypothesis is based on unwarranted assumptions, it becomes unrealistic.

    12. All Commodities are not Divisible:
    The indifference curve analysis becomes ridiculous when it is assumed that goods are divisible in small units. Commodities like watches, cars, radios, etc. are indivisible. To have 3½ watches or 2½ cars or 1½ radios in any combination is unrealistic. When indivisible goods are taken in a combination, they cannot be substituted without dividing them. Thus the consumer cannot get maximum satisfaction from the use of indivisible goods.

    Despite these criticisms, the indifference curve technique is still regarded superior to the Marshallian introspective cardinalism.

    2) Write short note on Budget constraint and utility maximization
    A budget constraint is an economic term referring to the combined amount of items you can afford within the amount of income available to you. For example, if you are a sales professional with a $1,000 budget for promotional items, this sets the upper limit on items you can purchase. The cost of each item and the minimum quantity you need would determine how many you can buy within your budget.
    The same principle of budget constraint can also be applied to time. If you are a manager, your employees only have a certain number of hours in a workday, which means you need to determine how much of their time they should spend on the various things they need to accomplish. The calculation may vary from week to week as your business priorities change and your employees’ available time adjusts since some weeks include holidays or employees might take time off.

    UTILITY MAXIMIZATION
    Utility maximization is a strategic scheme whereby individuals and companies seek to achieve the highest level of satisfaction from their economic decisions. For example, when a company’s resources are limited, management will implement a plan of purchasing goods or services that provides the maximum benefit. The concept of utility maximization was developed by the utilitarian philosophers Jeremy Bentham and John Stuart Mill. It was incorporated into economics by English economist Alfred Marshall. An assumption in classical economics is that the cost of a product that a consumer is willing to pay is an approximation of the maximum utility that they receive from the purchased good. The combination of goods or services that maximize utility is determined by comparing the marginal utility of two choices and finding the alternative with the highest total utility within the budget limit. The decision is influenced by the option that produces a higher level of satisfaction. This explains how companies and individuals develop consumption habits.

    The consumer may consider purchasing more of one item and less of another. Through maximizing utility, the consumer will buy an item that produces the greatest marginal utility with the least amount of spending.

    For example, if product ‘A’ comes with twice more marginal utility than product ‘B,’ that means product ‘A’ is providing more marginal utility per dollar than ‘B.’ As a result, the consumer may decide to buy more of product ‘A.’

    3) Extensively discuss the Cobweb theory.

    Cobweb theory is the idea that price fluctuations can lead to fluctuations in supply which cause a cycle of rising and falling prices.

    In a simple cobweb model, we assume there is an agricultural market where supply can vary due to variable factors, such as the weather.

    Assumptions of Cobweb theory

    In an agricultural market, farmers have to decide how much to produce a year in advance – before they know what the market price will be. (supply is price inelastic in short-term)
    A key determinant of supply will be the price from the previous year.
    A low price will mean some farmers go out of business. Also, a low price will discourage farmers from growing that crop in the next year.
    Demand for agricultural goods is usually price inelastic (a fall in price only causes a smaller % increase in demand)

    If there is a very good harvest, then supply will be greater than expected and this will cause a fall in price.
    However, this fall in price may cause some farmers to go out of business. Next year farmers may be put off by the low price and produce something else. The consequence is that if we have one year of low prices, next year farmers reduce the supply.
    If supply is reduced, then this will cause the price to rise.
    If farmers see high prices (and high profits), then next year they are inclined to increase supply because that product is more profitable.
    In theory, the market could fluctuate between high price and low price as suppliers respond to past prices.

    Cobweb theory and price divergence

    Price will diverge from the equilibrium when the supply curve is more elastic than the demand curve, (at the equilibrium point)

    cobweb-increasing-volatility-price

    If the slope of the supply curve is less than the demand curve, then the price changes could become magnified and the market more unstable.

    Cobweb theory and price convergence

    cobweb-theory-decreasing-volatility

    At the equilibrium point, if the demand curve is more elastic than the supply curve, we get the price volatility falling, and the price will converge on the equilibrium

    Limitations of Cobweb theory

    Rational expectations. The model assumes farmers base next years supply purely on the previous price and assume that next year’s price will be the same as last year (adaptive expectations). However, that rarely applies in the real world. Farmers are more likely to see it as a ‘good’ year or ‘bad year and learn from price volatility.

    Price divergence is unrealistic and not empirically seen. The idea that farmers only base supply on last year’s price means, in theory, prices could increasingly diverge, but farmers would learn from this and pre-empt changes in price.

    It may not be easy or desirable to switch supply. A potato grower may concentrate on potatoes because that is his speciality. It is not easy to give up potatoes and take to aubergines.

    Other factors affecting price. There are many other factors affecting price than a farmers decision to supply. In global markets, supply fluctuations will be minimized by the role of importing from abroad. Also, demand may vary. Also, supply can vary due to weather factors.

    Buffer stock schemes. Governments or producers could band together to limit price volatility by buying surplus

    Possible examples of Cobweb theory

    Housing

    Housing is very inelastic and subject to booms and bust. In response to the housing boom in Ireland, supply increased. But, the price collapsed, leading to a big fall in the building of new housing. Tamari, (1981) argued there was evidence of cobweb nature of the Israeli housing market.

  83. Avatar Onyeukwu Maclaw Okechi says:

    NAME: ONYEUKWU MACLAW OKECHI
    DEPARTMENT: ECONOMICS
    LEVEL:200
    REG NUMBER: 202/248952
    Eco 201 answers
    1.An indifference curve is a graphical representation of a combination of two goods that offers the consumer equal satisfaction on consumption, thereby making the consumer indifferent.
    Indifference Curve Assumptions
    a. The consumer is rational to maximize the satisfaction and makes a transitive or consistent choice.
    b. The consumer is expected to buy any of the two commodities in a combination.
    c. Consumers can rank a combination of commodities based on their satisfaction levels. Usually, the combination with the higher satisfaction level is preferred.
    d. The consumer behavior remains constant in the analysis.
    e. The utility is expressed in terms of ordinal numbers.
    f. Assumes marginal rate of substitution to diminish.
    Criticisms
    1. Unrealistic assumptions:
    It is based on unrealistic assumptions of rationality, perfect competition, divisibility of goods and perfect knowledge of scale or prefrence
    2. No novelty:
    Prof. D.H. Robertson remarked that the indifference curve technique is merely “An old wine in new bottle.”
    This technique is similar to the utility analysis because it merely gave new names to old terms. The concept of utility is replaced by scale of preference, tendency of diminishing marginal utility is replaced by diminishing marginal rate of substitution and cordinal numbers such as 1, 2, 3 etc., were labelled as ordinal numbers I, II, III, etc.
    3. Indifference curve is non-transitive:
    Prof. W.E. Armstrong has argued that a consumer is indifferent between close alternative combinations only because he is not able to perceive the difference between the two.
    But as the difference of combinations increases, the difference in the satisfaction of different combinations becomes evident and so the different combinations on the same indifference curve do not yield equal satisfaction.

    2. BUDGET CONSTRAINTS
    A budget constraint is an economic term referring to the combined amount of items you can afford within the amount of income available to you. For example, if you are a sales professional with a $1,000 budget for promotional items, this sets the upper limit on items you can purchase. The cost of each item and the minimum quantity you need would determine how many you can buy within your budget.
    The same principle of budget constraint can also be applied to time. If you are a manager, your employees only have a certain number of hours in a workday, which means you need to determine how much of their time they should spend on the various things they need to accomplish. The calculation may vary from week to week as your business priorities change and your employees’ available time adjusts since some weeks include holidays or employees might take time off.

    UTILITY MAXIMIZATION
    Utility maximization is a strategic scheme whereby individuals and companies seek to achieve the highest level of satisfaction from their economic decisions. For example, when a company’s resources are limited, management will implement a plan of purchasing goods or services that provides the maximum benefit.The concept of utility maximization was developed by the utilitarian philosophers Jeremy Bentham and John Stuart Mill. It was incorporated into economics by English economist Alfred Marshall. An assumption in classical economics is that the cost of a product that a consumer is willing to pay is an approximation of the maximum utility that they receive from the purchased good.

    3. COBWEB THEORY
    The cobweb model or cobweb theory is an economic model that explains why prices might be subject to periodic fluctuations in certain types of markets. It describes cyclical supply and demand in a market where the amount produced must be chosen before prices are observed. Producers’ expectations about prices are assumed to be based on observations of previous prices. Nicholas Kaldor analyzed the model in 1934, coining the term “cobweb theorem” (see Kaldor, 1938 and Pashigian, 2008), citing previous analyses in German by Henry Schultz and Umberto Ricci.
    The cobweb model is generally based on a time lag between supply and demand decisions. Agricultural markets are a context where the cobweb model might apply, since there is a lag between planting and harvesting (Kaldor, 1934, p. 133-134 gives two agricultural examples: rubber and corn). Suppose for example that as a result of unexpectedly bad weather, farmers go to market with an unusually small crop of strawberries. This shortage, equivalent to a leftward shift in the market’s supply curve, results in high prices. If farmers expect these high price conditions to continue, then in the following year, they will raise their production of strawberries relative to other crops. Therefore, when they go to market the supply will be high, resulting in low prices. If they then expect low prices to continue, they will decrease their production of strawberries for the next year, resulting in high prices again.

  84. Avatar Chukwuma ogochukwu susan says:

    NAME: Chukwuma ogochukwu susan
    Reg no: 2020/242910
    Dept: combined social science (Eco/pol)

    1)DEFINITION OF INDIFFERENCE CURVE
    an indifference curve connects points on a graph representing different quantities of two goods, points between which a consumer is indifferent. That is, any combinations of two products indicated by the curve will provide the consumer with equal levels of utility, and the consumer has no preference for one combination or bundle of goods over a different combination on the same curve. One can also refer to each point on the indifference curve as rendering the same level of utility (satisfaction) for the consumer. In other words, an indifference curve is the locus of various points showing different combinations of two goods providing equal utility to the consumer.
    There are infinitely many indifference curves: one passes through each combination. A collection of (selected) indifference curves, illustrated graphically, is referred to as an indifference map. The slope of an indifference curve is called the MRS (marginal rate of substitution), and it indicates how much of good y must be sacrificed to keep the utility constant if good x is increased by one unit. Given a utility function u(x,y), to calculate the MRS, we simply take the partial derivative of the function u with respect to good x and divide it by the partial derivative of the function u with respect to good y. If the marginal rate of substitution is diminishing along an indifference curve, that is the magnitude of the slope is decreasing or becoming less steep, then the preference is convex.
    ASSUMPTIONS OF INDEPENDENCE CURVE
    (1)There are two goods X and Y.
    (2) The consumer possesses complete information about the prices of the goods in the market.
    (3) The prices of the two goods are given.
    (4) The consumer’s tastes, habits and income remain the same throughout the analysis.
    (5)He prefers more of X to less of У or more of Y to less of X.

    CRITICISM
    Indifference curves inherit the criticisms directed at utility more generally.
    Herbert Hovenkamp (1991)has argued that the presence of an endowment effect has significant implications for law and economics, particularly in regard to welfare economics. He argues that the presence of an endowment effect indicates that a person has no indifference curve (see however Hanemann, 1991rendering the neoclassical tools of welfare analysis useless, concluding that courts should instead use WTA as a measure of value. Fischel (1995)however, raises the counterpoint that using WTA as a measure of value would deter the development of a nation’s infrastructure and economic growth.
    Austrian economist Murray Rothbard criticised the indifference curve as “never by definition exhibited in action, in actual exchanges, and is therefore unknowable and objectively meaningless.

    2) WHAT IS BUDGET CONSTRAINT
    A budget constraint is an economic term referring to the combined amount of items you can afford within the amount of income available to you. For example, if you are a sales professional with a $1,000 budget for promotional items, this sets the upper limit on items you can purchase. The cost of each item and the minimum quantity you need would determine how many you can buy within your budget.
    The same principle of budget constraint can also be applied to time. If you are a manager, your employees only have a certain number of hours in a workday, which means you need to determine how much of their time they should spend on the various things they need to accomplish. The calculation may vary from week to week as your business priorities change and your employees’ available time adjusts since some weeks include holidays or employees might take time off.
    How do budget constraints work?
    When calculating budget constraints, you normally have a number of things under consideration for which you are trying to budget. However, it’s easier to understand how budget constraints work if you just consider two sets of items. You could spend your entire budget on item one, or you could spend it all on item two. Alternatively, you could buy a combination of some of item one and some of item two. The proportions of each item you purchase would be constrained by your budget.
    Budget constraint equation
    You can use the following equation to help calculate budget constraint:
    (P1 x Q1) + (P2 x Q2) = m
    In this equation, P1 is the cost of the first item, P2 is the cost of the second item and m is the amount of money available. Q1 and Q2 represent the quantity of each item you are purchasing. You could express this equation verbally by saying that the cost of the total number of X items added to the cost of the total number of Y items must equal the amount of money or income you have available.

    What is Utility Maximization?
    Utility maximization is a strategic scheme whereby individuals and companies seek to achieve the highest level of satisfaction from their economic decisions. For example, when a company’s resources are limited, management will implement a plan of purchasing goods or services that provides the maximum benefit.

    Understanding Utility Maximization
    The combination of goods or services that maximize utility is determined by comparing the marginal utility of two choices and finding the alternative with the highest total utility within the budget limit. The decision is influenced by the option that produces a higher level of satisfaction. This explains how companies and individuals develop consumption habits.
    The consumer may consider purchasing more of one item and less of another. Through maximizing utility, the consumer will buy an item that produces the greatest marginal utility with the least amount of spending.

    3) COBWEB THEORY
    Cobweb theory is the idea that price fluctuations can lead to fluctuations in supply which cause a cycle of rising and falling prices.
    In a simple cobweb model, we assume there is an agricultural market where supply can vary due to variable factors, such as the weather.
    ASSUMPTIONS OF COBWEB THEORY
    1)In an agricultural market, farmers have to decide how much to produce a year in advance – before they know what the market price will be. (supply is price inelastic in short-term)
    2) A key determinant of supply will be the price from the previous year.
    3) A low price will mean some farmers go out of business. Also, a low price will discourage farmers from growing that crop in the next year.
    Limitations of Cobweb theory
    1)Rational expectations. The model assumes farmers base next years supply purely on the previous price and assume that next year’s price will be the same as last year (adaptive expectations). However, that rarely applies in the real world. Farmers are more likely to see it as a ‘good’ year or ‘bad year and learn from price volatility.
    2)Price divergence is unrealistic and not empirically seen. The idea that farmers only base supply on last year’s price means, in theory, prices could increasingly diverge, but farmers would learn from this and pre-empt changes in price.
    3)It may not be easy or desirable to switch supply. A potato grower may concentrate on potatoes because that is his speciality. It is not easy to give up potatoes and take to aubergines.
    Possible examples of Cobweb theory
    Housing
    Housing is very inelastic and subject to booms and bust. In response to the housing boom in Ireland, supply increased. But, the price collapsed, leading to a big fall in the building of new housing. Tamari, (1981) argued there was evidence of cobweb nature of the Israeli housing market.

  85. Avatar Anyanwu Chinazaekpere Mavis says:

    NAME: ANYANWU CHINAZAEKPERE MAVIS
    DEPARTMENT: EDUCATION/ECONOMICS
    REG NO: 2020/243851
    COURSE CODE: ECO 201
    1: Ordinal Approach requires the consumers to make a scale of preference. This makes them to choose between the different commodities that can give them the same level of satisfaction. This approach assumes that utility can be ranked at different levels using an Indifference curve.
    An Indifference curve is a curve that indicates the same level of utility ( satisfaction) attained by a consumer from consumption of two commodities. Several Indifference curve is called an Indifference map.
    The Indifference curve theory measures utility ordinally. The curve shows a combination of two goods : X and Y that provides equal satisfaction to an individual.
    In Economics, Indifference curve depicts the point where individuals have no particular preference for either one good or another based on their relative quantities.
    ” An Indifference schedule is a list of combinations of two commodities, the list being so arranged that a consumer is indifferent to the combinations preferring none of any other”. A standard Indifference curve analysis operates using a simple two dimensional chart. Each axis represents one type of economic good.
    Assumptions of the Indifference curve
    It retained some of the assumptions of the cardinal theory, rejects others and formulates it’s own. The assumptions are as follows;
    1: The consumers acts rationally so as to maximize satisfaction.
    2: There are two goods X and Y.
    3: The consumer posseses complete information about the prices of goods in the market.
    4: The prices of the two goods are given.
    5: The consumers’ tastes, habits and income remain the same throughout the analysis.
    6: An Indifference curve is negatively inclined, sloping downwards .
    7: The consumer arranged the two goods in a scale of preference which means that he has both “preference” and ” Indifference” for the goods.
    Properties of the Indifference Curve
    1: A higher Indifference curve to the right of another represents a higher level of satisfaction and preferably combination of the two goods.
    2: In between two Indifference curves, there can be a number of other Indifference curves, one for every point in the space on the diagram.
    3: The slope of an Indifference curve is negative, downward sloping and from left to right.
    4: Indifference curve alcan neither touch not intersect each other.
    5: Indifference curve cannot touch either axis.
    6: They are convex to the origin.
    Criticisms of the Indifference Curve
    1: The Indifference curve does not provide behavioristic explanation of consumer behavior based on weak ordering.
    2: Indifference curve is non– transitive.
    3: Indifference curve fails to explain risky choice
    4: The Indifference curve technique is based on the unrealistic assumptions of perfect competition and homogeneity of goods.
    5 The Indifference curve analysis fails to consider other factors concerning consumer behavior such as speculative demand, interdependence of the preferences of consumers in the form of snob, Veblen and Band– Wagon effects, the effects of advertising, etc. And so many other criticisms.

    2A: UTILITY MAXIMIZATION: This is also called Consumer Equilibrium. This is a point where a consumer derives maximum satisfaction when his/her marginal utility equates the price of the commodity. A consumer is in equilibrium when given his taste and prices of the two goods(X and Y), he buys the two goods and gains maximum satisfaction after consumption, when his income allows it. At this point, marginal utility is equal to zero.
    MUx=prices=0.
    Utility maximization is the attainment of the greatest possible total utility.
    Assumptions of Consumer Equilibrium
    1: Goods X and Y are homogeneous and divisible.
    2: The consumer is rational.
    3: There is perfect competition.
    4: There is no change in taste of the consumer.
    5: Assumes his money (Income) remains constant. It doesn’t changel…l

    2B: BUDGET CONSTRAINT: In economics, a budget constraint represents all the combinations of goods and services that a consumer may purchase given current prices within his or her given income. Consumer theory uses the concepts of a budget constraint and a preference map as tools to examine the parameters of consumer choices . Both concepts have a ready graphical representation in the two-good case. The consumer can only purchase as much as their income will allow, hence they are constrained by their budget.
    The equation of a budget constraint is
    P1 X1 + P2 X2 ≤ M

    3: COBWEB THEORY: The cobweb theorem is an economic model used to explain how small economic shocks can become amplified by the behaviour of producers. The amplification is, essentially, the result of information failure, where producers base their current output on the average price they obtain in the market during the previous year. This is, to some extent, a non-rational decision, given that a supply side shock between planting and harvesting (such as an unexpectedly good or bad harvest) can lead to an unexpectedly lower or higher price. This results in either a higher output or a lower output in subsequent years, and moves the market into a long-term disequilibrium position. Nicholas Kaldor analyzed the model in 1934.

  86. Avatar Aloka Anita Nneka says:

    Name: Aloka Anita Nneka
    Reg number:2020/242953
    Dept: Combined Social sciences (Eco/Psy)
    Indifference curve:Adopted the concept of ordinal utility. the combination of two goods X and Y is different quantity that provides the same satisfaction.
    Assumptions:
    it assumes that consumer acts rationally to maximize satisfaction.
    assume that there are two goods X and Y.
    prices of two goods are given.
    consumer taste and income remain the same throughout the analysis.
    Budget Constraints:
    also know as budget line or price line.
    is the total amount of items you can afford within a current budget.

  87. Avatar Eze praise c says:

    NAME: EZE PRAISE C
    REG NUMBER: 2020/242583
    DEPARTMENT: ECONOMICS
    ECO 201
    EMAIL: praisechidimma75@gmail.com

    Eco 201 Online Quiz and Discussion (Budget constraint and others)—-6/3/2023
    1) Briefly discuss the indifference curve(including its assumptions and criticisms)

    Answers:

    An indifference curve is a graphical representation of a combined products that gives similar kind of satisfaction to a consumer thereby making them indifferent.Every point on the indifference curve shows that an individual or a consumer is indifferent between the two products as it gives him the same kind of utility.

    ASSUMPTIONS OF INDIFFERENCE CURVE

    • The acts rationally so as to maximize satisfaction
    • There are two goods X and Y
    • The price of the two goods are given
    • The consumer’s taste, habits and income remain the same throughout the analysis
    • The consumer arranges two goods in a scale of preference which means that he has both preference and indifference for the goods.

    CRITICISM;

    • Unrealistic assumptions:
    It is based on unrealistic assumptions of rationality, perfect competition, divisibility of goods and perfect knowledge of scale or preference.

    • Fails to Explain the Observed Behaviour of the Consumer

    • The Consumer is not Rational:
    The indifference analysis, like the utility theory, assumes that the consumer acts rationally. He is of a calculating mind who carries innumerable combinations of different commodities in his head, can substitute one for the other, compare their total utilities and make a rational choice between various combinations of goods. This is too much to expect of the consumer who has to act under various social, economic and legal constraints.

    • Combinations are not based on any Principle:
    Since the combinations are made irrespective of the nature of goods, they often become absurd. How many of us buy 10 pairs of shoes and 8 pants, 6 radios and 5 watches or 4 scooters and 3 cars? Such combinations do not possess any significance for the consumer.

    • Two-Goods Model Unrealistic:
    Again, the two-goods model on which the indifference analysis is based makes the theory unrealistic because a consumer buys not two but a large number of commodities to satisfy his innumerable wants. But the difficulty is that in the case of more than three goods geometry fails and economists will have to depend upon complicated mathematical solutions for analysing the problem of consumer behaviour

    2) Write short note on Budget constraint and utility maximization

    • BUDGET CONSTRAINT
    A budget constraint refers to the maximum combined items one can afford with the income generated by the individual. Based on the money available each month, an individual must allocate their funds efficiently to purchase goods and services.

    To conceptualize this in a simple way, imagine having only two items that can be purchased with the budget: hot dogs and t-shirts. The budget can be spent entirely on hot dogs, entirely on t-shirts, or some combination of both. The quantity of either good that can be purchased is determined by the price of the good, as well as the quantity purchased, and the price of the other good.
    BUDGET CONSTRAINT FORMULA:
    A budget constraint in the example with only two goods can be expressed as follows:

    (P1 x Q1) + (P2 x Q2) = M

    • UTILITY MAXIMIZATION
    Utility maximization means making economic decisions that guarantee the highest level of consumer satisfaction (benefit). An example is when a consumer decides to purchase more of “Product A” and less of “Product B” because this combination guarantees more benefit (utility) per dollar.

    3) Extensively discuss the Cobweb theory.

    • Answer
    The cobweb model or cobweb theory is an economic model that explains why prices might be subject to periodic fluctuations in certain types of markets. It describes cyclical supply and demand in a market where the amount produced must be chosen before prices are observed.

    This theorem is based on three assumptions:

    (i) Perfect competition in which each producer assumes that present prices will continue and that his own production plans will not affect the market,

    (ii) Price is completely a function of the preceding period’s supply

    (iii) The commodity concerned is perishable. These assumptions show that the theory is particularly applicable to agricultural products.

    Cobwebs have been divided into:
    1. Continuous Cobwebs,

    2. Divergent Cobwebs, and

    3. Convergent Cobwebs.

    • Criticism of Cobweb Theory:
    Like all other theories of trade cycle, the Cobweb Theory too suffers from some severe limitations:

    •This is not strictly a trade cycle theorem for it is concerned only with the farming sector. There are a good many others sphere of production where it says nothing.
    • This theorem assumes that the output is solely governed by price. Thus is unrealistic assumption. The fact is that the output particularly of farm products is determined not only by price, but by several other factors—weather, prices of the factors of production.

    • The theory is based upon the unsound assumption that the crop which farmer plants in 2008 depends solely on the prices ruling in 2007. As a matter of fact this is contrary to facts. When 2007 prices undoubtedly influence decisions regarding 2008 crops, producers are also influenced by their expectations.

  88. Avatar Okoro ujunwa Priscilla REG NO;2020/248252 says:

    1) INDIFFERENCE CURVE
    Its one of the main tools, which is used in this analysis to examine consumer behaviour
    It shows;
    The various commodity combinations which give satisfaction.
    There are commodity combinations that give the same level of satisfaction, even if the commodity combinations is different.

    Maps of indifference curve
    It shows the ranked preference of the consumer combinations of commodities lying on a higher indifference curve yield a higher level of satisfaction than the lower indifference curve.
    Among the various combinations, we can identify bundle of goods, which yield the same utility.

    Properties
    I) An indifference curve has a negative slope.
    II) The indifference curve of a rational consumer is convex towards the origin.
    III) Indifference curve can not intersect with each other.

    Assumptions
    I) Rationality
    II) Utility is ordinal
    III) Consistency and transitivity of choice
    Iv) The diminishing marginal rate of substitution.

    Criticism
    I) Unrealistic assumption: It’s based on Unrealistic assumption of Rationality, perfect competition, divisibility of goods.
    II) No novelty: It merely gave new names to old terms. E.g The concept of utility is replaced by scale of preferences.
    III) Indifference curve is non – transitive.
    Iv) Fails to explain risky choice
    v) Absurd and unrealistic combinations.

    2) BUDGET CONSTRAINTS
    This occurs when a consumer is limited in consumption patterns by a certain income. When looking at a demand schedule we often consider effective demand. Effective demand is what people are actually able to spend given their limitations of income.
    Temporary budget constraints can be overcome by borrowing, but in the long term budget constraints are determined by income such as rent and wages.
    It’s governed by income on one hand- how much money a consumer has available to spend on consumption and the prices of goods the consumer purchases on the other hand.

    UTILITY MAXIMIZATION
    It refers to the concept that individuals and firms seek to get the highest satisfaction from their economic decisions. E.g when deciding how to spend a fixed sum, individuals will purchase the combinations of goods and services that give the most satisfaction.
    How individuals achieve utility
    A consumer will consumer a good up to the point where the marginal utility is greater than or equal to the price.
    When choosing between different goods, the equi – marginal principle argues that consumers will maximize total utility from their incomes by consuming that combinations of goods where:
    MUa = Pa

    3) THE COBWEB THEORY
    The Cobweb Theorem attempts to explain the regularly recurring cycles in the output and prices of farm products. Frankly speaking, it is not a business cycle theory for it relates only to the farming sector of the economy. In 1930 Cobweb Theory was advanced by the three economists in Italy.
    Netherlands and the United States, apparently independently of each other almost at the same time. The names of Henery Schultz. (U.S.A.), Jam Tinbergen (Netherland) and Althus Hanau (Italy) are associated with’ the theory, although the term Cobweb Theory was first suggested by Professor Nicholas Kaldor in 1934. It was so named because the pattern traced by the prices and output move­ments resembled a cobweb. The Cobweb Theory of trade cycle is based upon the foundation of ‘lag’ concept.
    It asserts that supply adjusts itself to changing conditions of demand which arc manifested through price changes not instantaneously but after certain period. This time, taken by the supply to adjust itself to changes in demand is known as lag.
    Thus the quantity supplied during any given time period is the function of the price prevailed in earlier time period to while the demand depends upon the price that prevails in period t itself. The core of this theory is that the response of supply to price ranges is not instantaneous.

    The Cobweb Theory of trade cycle has its chief application in the case of agricultural products the supply of which can be increased or decreased with certain time-lag. Most crops can be sown and reaped only once a year. For instance, if the price of wheat increases say in September 2007 then supply will not increase instantaneously.
    The farmer will, of course, devote larger farm acreage to wheat cultivation in the next crop season and so it will take one year before supply increases in response to increase in wheat price. Thus the supply of wheat in 2008 will depend upon the price of wheat that prevailed in 2007 which offered the farmer inducement to devote more land to wheat cultivation.

    Assumptions of Cobweb Theory:
    This theorem is based on three assumptions:

    (i) Perfect competition in which each producer assumes that present prices will continue and that his own production plans will not affect the market,
    (ii) Price is completely a function of the preceding period’s supply
    (iii) The commodity concerned is perishable. These assumptions show that the theory is particularly applicable to agricultural products.
    Since the supply in farming is slow to adjust itself to changes in demand and, violent fluctuations in prices and outputs are most likely to occur. For instance, an increase in demand will at once result in a spiral rise in price, since in the short period there can be no increase in supply. This high price may make farmers increase their outputs to a greater degree than is justified by the increase in demand.
    Consequently when this increased supply comes to the market, there will be a sharp fall in price which may then result in a reduction in output in the next period to a greater extent again than is justified. The result is that violent changes in output succeed price longer in farm products.
    Professor Tinbergen has extended the application of Cobweb’s analysis to durable goods the supply of which responds to demand changes after a significant time-lag because on account of long “gestation period”, there is a considerable lag between the decision to produce and the actual deliveries of the durable goods.

    Cobwebs have been divided into:
    (1) Continuous Cobwebs,
    (2) Divergent Cobwebs, and
    (3) Convergent Cobwebs.

    In the case of continuous Cobweb the fluctuations in price and output continues repeating about equilibrium at same level. In the case of diverging Cobweb the amplitude of the fluctuation increases with the passage of time. Once disturbed from position of equilibrium the economy moves cumulatively away from it into the doledrums of disequilibrium.
    This happens when the slope of the supply curve is less steep than the slops of demand curve. In the case of converging cobweb the economy, if and when disturbed from its equilibrium position, has a tendency to regain it through a series of oscillations. Each fluctuation is more damped than the one preceding it. This narrowing down of the amplitude of the fluctuations occurs when the slope of the supply curve is steeper than the slope of demand curve.

    (I) Continuous web
    Where the elasticity of supply is equal to the elasticity of demand.
    As long as price is completely determined by the current supply, and supply is completely de­termined by the preceding price, fluctuation in price and production will continue in this unchanging pattern indefinitely, without an equilibrium being approached or reached. This is true in this particular case because, the demand curve is the exact reverse of the supply curve so that at their overlap each has the same elasticity. This case has been designated the “case of continuous fluctuations.

    (2) Divergent Fluctuation:
    Where the elasticity of supply is greater than the elasticity of demand.
    Under these conditions the situation might continue to grow more and more unstable, until price fell to absolute zero, or production was completely abandoned, or a limit was reached to available resources (where the elasticity of supply would change) so that production could no longer expand. The case has been designated the “case of divergent fluctuation.”

    (3) Convergent Fluctuation:
    The reverse situation, with supply less elastic than demand. production and price approach more and more closely to the equilibrium condition where further changes would occur. Of the three case considered thus so far, only this one behaves in the manner assumed by equilibrium theory ; and even it converges rapidly. If the supply curve is markedly less elastic than the demand curve. The case has been designated “the case of convergent fluctuation.

    The Cobweb theory of trade cycle represents an important forward step in the devel­opment of the dynamic explanations of the cyclical fluctuations. The earlier approaches to the study of the cycle problem were static in character. They treated the economy as of a point in time ignoring completely the movements of the economy through time.
    To the extent the adjustments between supply and demand were assumed to take place instantaneously and not with a certain degree of time lag, the earlier approaches were static and could not furnish useful tools that could be applied with a fair degree of reliance for solving the problem of economic fluctuations in the dynamic economy where adjustments involved lags. The Cobweb Theorem furnishes us with an illustration of the dynamic process of adjustment movements through time.

    Criticism of Cobweb Theory:
    Like all other theories of trade cycle, the Cobweb Theory too suffers from some severe limitations:

    (1) This is not strictly a trade cycle theorem for it is concerned only with the farming sector. There are a good many others sphere of production where it says nothing.

    (2) This theorem assumes that the output is solely governed by price. Thus is unrealistic assumption. The fact is that the output particularly of farm products is determined not only by price, but by several other factors—weather, prices of the factors of production.

    (3) It is applicable only where:
    (a) The price is governed by the supply available,
    (b) When production is governed only by the considerations of price as wider perfect competition, and
    (c) When production cannot vary before the expiry of one full period.

    (4) The theory is based upon the unsound assumption that the crop which farmer plants in 2008 depends solely on the prices ruling in 2007. As a matter of fact this is contrary to facts. When 2007 prices undoubtedly influence decisions regarding 2008 crops, producers are also influenced by their expectations.
    Producer’s decisions with regard production during any given period depend not only upon the backward look but also on the forward guess. If this year’s price is high, producers are apt to foresee some reaction to the high price and anticipate larger output by their competitors next year.

    (5) This theory of trade cycle suffers from another weakness too. If we look at the Fig 2 showing the diverging cobweb cycle, we find that disequilibrium once began continues indefinitely. The curves show that once the equilibrium is upset, the system falls into a series of unending cycles. In practice, however, this is most unlikely to happen. Commonsense tells that it cannot happen. In practice the shape of the curves is such as to make continued divergence impossible.

    (6) It can also be argued that even the constant type of cobweb cycle would not continue indefinitely.

  89. Avatar Attah kelechi Rita says:

    Attah kelechi Rita
    2020/242576
    Economics department
    Kelechirita725@gmail.com

    1). Indifference Curve
    An indifference curve describes the relationship between two different goods. It is a curve that shows the average amount of utility a person would be willing to sacrifice for each increase in the amount of the goods they are indifferent between. When the goods are perfect substitutes, the indifference curve is a vertical line.When the goods are not perfect substitutes, the indifference curve is a curve that slopes down towards the lower amount of goods an individual is indifferent between.
    Assumption of indifference curve
    The consumer is rational to maximize the satisfaction and makes a transitive or consistent Choice. The consumer is expected to buy any of the two commodities in a combination. Consumers can rank a combination of commodities based on their satisfaction levels.
    Criticisms of indifference curve
    Indifference curve analysis is criticized on the ground that’s it cannot explain consumer behavior when he has to choose among alternatives involving risk or uncertainty of expectation. To make a choice among uncertain alternatives quantitative measurement of utility is needed to decide whether the risk is worth taking.

    2). BUDGET CONSTRAINT
    The budget constraint is the boundary of the opportunity cost , set all possible combination of consumption that someone can afford given the prices of goods and the individual’s income.
    UTILITY MAXIMIZATION
    Utility maximization is a strategic scheme whereby individuals and companies seek to achieve the highest level of satisfaction from their economic decisions. For example, when a company’s resources are limited, management will implement a plan of purchasing goods or services that provides the maximum benefit.

    3) COBWEB THEORY
    Cobweb theory is the idea that price fluctuations can lead to fluctuations in supply which cause a cycle of rising and falling prices. It explains why prices might be subject to periodic fluctuations in certain types of markets.it describes cyclical supply and demand in a market where the amount produced must be chosen before prices are observed. The producers of agricultural goods, for instance, might decide to increase their output one year because their product commanded a very high price the previous year. This, however might lead to over production and cause prices to slump that year, thus leading to losses.

  90. Avatar Mbibe Martha Queen says:

    Name: Mbibe Martha Queen
    Department: Combined Social Sciences (Economics/Political science)
    Reg.Number: 2020/242938
    Course: ECO 201(INTRODUCTION TO MICROECONOMICS I).

    QUESTIONS
    Briefly discuss the indifference curve (its Assumptions and Criticisms)
    Write short notes on Budget constraints and utility maximization.
    Extensively discuss the Cobweb Theory.

    ANSWERS

    THE INDIFFERENCE CURVE
    The indifference curve is a graphical representation of the concept of utility in economics. It shows all the possible contributions of two goods that provide the same level of satisfaction or utility to a consumer. The indifference curve is a fundamental tool in microeconomic theory and it Is used to analyze consumer behavior.
    ASSUMPTIONS OF INDEFFERENCE INCLUDE:
    Rationality: The consumer is rational and seeks to maximize their utility.
    Continuity: The consumer’s preferences are continuous and can be represented by a smooth curve.
    Diminishing Marginal Rate of Substitution (MRS): The consumer’s willingness to give up one good for another good decrease as they consume more of each good.
    Transitivity: The consumer’s preferences are consistent and transitive. If a consumer prefers A to B and B to C, then they also prefer C to A.
    Non-satiation: The consumer always wants more of both goods and does not become satiated or tired of consumption.

    CRITICISMS OF INDEFFERENCE CURVE INCLUDE:
    The indifference curve assumes that the consumer’s preferences are stable and do not change over time. However, this may not always be the case, as preference can change due to factors such as advertising , personal experience, or social norms.
    The assumptions if diminishing marginal utility nay not always hold true, especially for luxury goods where the consumer may experience increasing marginal utility as they consume more of the good.
    The indifference curve model assumes that the consumer has perfect information and can make rational decisions based on that information. In reality, consumers may have imperfect information and make decisions based on incorrect or inaccurate information.
    The model assumes that the consumer has a fixed income and does not take into account changes in income or price levels, which can significantly their consumption decisions.

    Despite these criticisms, the indifference curve remains a valuable tool in microeconomic analysis and is widely used in consumer theory and welfare economics.

    BUDGET CONSTRAINT AND UTILITY MAXIMIZATION
    BUDGET CONSTRAINT

    Budget constraint is an essential concept in economics that reflects the ideas that consumers face a limited amount of income and must allocate it efficiently among goods and services. It is a constraint that limits the set of consumption choices available to a consumer.
    Assuming two goods, X and Y, the budget constraint can be represented as an equation.

    PXX + PYY = M

    Where PX and PY are the prices of goods X and Y, M is the consumer’s income, and X and Y are the quantities of each good consumed. The budget constraint equation shows that the total amount spent on goods X and Y cannot exceed the consumer’s income.

    UTILITY MAXIMIZATION

    Utility maximization is the process by which consumers allocate their limited income among goods in a way that maximizes the total satisfaction or utility. The utility function is a mathematical function that represents a consumer’s preferences over different combinations of goods.
    The optimal consumption bundle is the combination of goods that maximizes the consumer’s utility subject to their budget constraint. The optimal bundle occurs where the slope of the indifference curve, representing the consumer’s for a combination of goods, is equal to the slope of the budget constraint line, representing the prices of the goods and the consumer’s income.

    Mathematically, this can be represented as:

    MUX/ PX = MUY/ PY

    Where MUX and MUY are the marginal utilities of goods X and Y, and PX and PY are the prices of goods X and Y. This equation is known as the marginal rate of substitution (MRS), which represents the rate at which the consumer is willing to substitute one good for another.

    In summary, the budget constraint and utility maximization are two essential concepts in microeconomics that help us understand how consumers allocate their limited income among goods in a way that maximizes their satisfaction or utility.

    THE COBWEB THEORY

    The cobweb theory is an economic model that explains the fluctuation in prices and quantities of goods in the market over time. The model assumes that there is a time lag between the production and consumptions of goods, which causes supply and demand to be out of sync, leading to cyclical price and quantity fluctuations.
    The cobweb model is typically represented graphically as a series of intersecting lines, with the horizontal axis representing time and the vertical axis representing price or quantity. The model assumes that in the first period, producers make decisions on how much of a good to produce based on the current price of the good. Consumers then make decisions on how much of the good purchase based on the price. In the second period, producers observe the previous period’s price and adjust their production accordingly but there is a time lag.

    The cobweb theory is often used to explain the behavior of agricultural markets, where the production cycle is relatively long and unpredictable. However, it can be applied to other markets as well. The theory is based on several key assumptions including:

    Producers have a fixed supply curve, meaning they can adjust production quickly in response to change in price.
    Consumers have a fixed demand curve, meaning they can adjust consumption quickly in response to change in price.
    Producers and consumers from their expectations about future prices based on the current price.
    There is a time lag between production and consumption, meaning that changes in production will affect prices in the future.

    With these assumptions in mind, the cobweb theory predicts that if the initial price of a good is above the equilibrium price, producers will increase production in response to the high price. However, because of the fixed supply curve, it will take time for the increased production to reach the market. In the meantime, consumers will have formed their expectations about the future price based on the current price and will be willing to pay more for the good. This will cause the price to rise even further, creating a cycle of overproduction and higher prices.
    Conversely, if the initial price is below equilibrium price, producers will decrease production in response to the low prices. Again, because of the fixed supply curve, it will take time for the decreased production to reach the market. In the meantime, consumers will form their expectations about the future price based on the current price and will be unwilling to pay as for the good. This will cause the price to fall even further, creating a cycle of underproduction and low prices. The cobweb theory is used in explaining the dynamics of markets with a long time lag between production and consumption. However, it is important to note that the theory relies on several simplifying assumptions and may not hold true in all cases. For example, if producers are able to adjust production quickly in response to change in price, the cycle of overproduction and underproduction may not occur. Similarly, if consumers are able to adjust consumption quickly I response to change in price, the cycle of higher and lower prices may not occur.
    Nonetheless, the cobweb theory provides a useful framework for understanding the behavior of markets with a time lag between production and consumption.

  91. Avatar Ezemma Honest Chinaza says:

    NAME: EZEMMA HONEST CHINAZA
    REG.NO: 2020/243001
    DEPARTMENT: COMBINED SOCIAL SCIENCE ( ECONOMICS/ PSYCHOLOGY)

    (1).
    INDIFFERENCE CURVE
    indifference curve in economics is a graph showing various combinations of two things (usually consumer goods) that yield equal satisfaction or utility to an individual. Developed by the Irish-born British economist Francis Y. Edgeworth, it is widely used as an analytical tool in the study of consumer behaviour, particularly as related to consumer demand. It is also utilized in welfare economics, a field that focuses on the effect of different actions on individual and general well-being.
    The classic indifference curve is drawn downward from left to right and convex to the origin, so that a consumer who is given a choice between any two points on it would not prefer one point over the other. Because all of the combinations of goods represented by the points are equally desirable, the consumer would be indifferent to the combination actually received. An indifference curve is always constructed on the assumption that, other things being equal, certain factors remain constant.

    ASSUMPTIONS OF AN INDIFFERENCE CURVE
    The notion and methodology of the indifference curve is based on the following assumptions;

    i. The consumer consumes only two goods
    ii. There is the possibility of substituting one good for another but there is no perfect substitution
    iii. Two goods are divisible
    iv. The consumer must be rational
    V. The marginal rate of substitution diminishes
    Vi. Transitivity and consistency in choice
    Vii. Ordinal measurement of utility
    CRITICISMS OF AN INDIFFERENCE CURVE
    1. Unrealistic assumptions:
    It is based on unrealistic assumptions of rationality, perfect competition, divisibility of goods and perfect knowledge of scale or preference.

    The purchases of a consumer arc very much affected by habits, customs and fashion. Therefore, a consumer does not act always rationally. We cannot expect a consumer to know his indifference map. Goods Visible and perfect completion is a myth.

    2. No novelty:
    Prof. D.H. Robertson remarked that the indifference curve technique is merely “An old wine in new bottle.”

    This technique is similar to the utility analysis because it merely gave new names to old terms.
    3. Indifference curve is non-transitive:
    Prof. W.E. Armstrong has argued that a consumer is indifferent between close alternative combinations only because he is not able to perceive the difference between the two.
    But as the difference of combinations increases, the difference in the satisfaction of different combinations becomes evident and so the different combinations on the same indifference curve do not yield equal satisfaction.
    4. Fails to explain risky choice:
    Indifference curve analysis is criticized on the ground that it cannot explain consumer behaviour when he has to choose among alternatives involving risk or uncertainty of expectation.

    5. Absurd and unrealistic combinations:
    Indifference curve analysis is based on hypothetical combinations. When we consider different combinations of two goods, then there may be some combinations that are meaningless and cannot be possible in real life.

    6. Does not provide behaviouristic explanation of consumer behaviour:
    The indifference map is hypothetical in nature and is not based on observed market behaviour. It is subjective in nature instead of objective.

    The reason is that it does not set up functions and curves in purely objective terms. Purely objective indifference curves can be possible only if it is possible to obtain quantitative data.

    7. Based on weak ordering:
    Indifference curve analysis is based on the weak ordering hypothesis i.e., a consumer can be indifferent between a large number of combinations.

    (2)
    BUDGET CONSTRAINT
    The budget constraint is the first piece of the utility maximization framework—or how consumers get the most value out of their money—and it describes all of the combinations of goods and services that the consumer can afford. In reality, there are many goods and services to choose from, but economists limit the discussion to two goods at a time for graphical simplicity
    UTILITY MAXIMIZATION
    Utility maximization refers to the concept that individuals and firms seek to get the highest satisfaction from their economic decisions.

    For example, when deciding how to spend a fixed some, individuals will purchase the combination of goods/services that give the most satisfaction.

    Utility maximiszation can also refer to other decisions – for example, the optimal number of hours for labour to supply their labour. Working more increases income, but reduces leisure time.

    (3)
    Cobweb theory
    Cobweb theory is the idea that price fluctuations can lead to fluctuations in supply which cause a cycle of rising and falling prices.

    In a simple cobweb model, we assume there is an agricultural market where supply can vary due to variable factors, such as the weather.

    Assumptions of Cobweb theory
    . In an agricultural market, farmers have to decide how much to produce a year in advance – before they know what the market price will be. (supply is price inelastic in short-term)
    . A key determinant of supply will be the price from the previous year.
    . A low price will mean some farmers go out of business. Also, a low price will discourage farmers from growing that crop in the next year.
    . Demand for agricultural goods is usually price inelastic (a fall in price only causes a smaller % increase in demand)

    COBWEB THEORY AND PRICE DIVERGENCE
    Price will diverge from the equilibrium when the supply curve is more elastic than the demand curve, (at the equilibrium point)
    If the slope of the supply curve is less than the demand curve, then the price changes could become magnified and the market more unstable.
    COBWEB THEORY AND PRICE CONVERGENCE
    At the equilibrium point, if the demand curve is more elastic than the supply curve, we get the price volatility falling, and the price will converge on the equilibrium

    LIMITATIONS OF COBWEB THEORY
    . Rational expectations. The model assumes farmers base next years supply purely on the previous price and assume that next year’s price will be the same as last year (adaptive expectations). However, that rarely applies in the real world. Farmers are more likely to see it as a ‘good’ year or ‘bad year and learn from price volatility.

    . Price divergence is unrealistic and not empirically seen. The idea that farmers only base supply on last year’s price means, in theory, prices could increasingly diverge, but farmers would learn from this and pre-empt changes in price.

    It may not be easy or desirable to switch supply. A potato grower may concentrate on potatoes because that is his speciality. It is not easy to give up potatoes and take to aubergines.

    . Other factors affecting price. There are many other factors affecting price than a farmers decision to supply. In global markets, supply fluctuations will be minimized by the role of importing from abroad. Also, demand may vary. Also, supply can vary due to weather factors.

    . Buffer stock schemes. Governments or producers could band together to limit price volatility by buying surplus

  92. Avatar Eneh Favour Onyinyechi says:

    1.Indifference curve shows the combination of two goods says x and y in various quantities that provide satisfaction (utility) to an individual. It describes where an individual has no preference for either one Good or another based on relative quantities. An indifference schedule is a list of combination of two commodities, the list so arranged that the consumer prefers none to another.

    Assumptions of indifference curve
    • An indifference curve is always convex to the origin
    • The price of the two goods are given
    • The consumer acts rationally in other to maximise satisfaction.
    • The consumer prefers more of x to less of y, or more of y to less of x.
    • The consumer possess complete information concerning the prices of goods.

    Criticism of indifference curve
    • The income can’t be constant
    • There can’t be two goods
    • The consumer can’t have perfect information of the market.
    • Not all goods are divisible.

    2i. Budget constraint: The budget constraint shows the various bundles of goods that the consumer can afford for a given income. It is the limit of consumption bundles a consumer can afford according to his/her income.
    ii. Utility maximization: This is also known as consumer equilibrium. It is a point where the consumer derives satisfaction because the marginal utility of the commodity equals the price of the commodity. At that point the marginal utility is equal to zero. Thus, MUx= Px=0.
    3. Cobweb theory has played an essential role incorporating both features as explanations for endogeneity of price and production cycles in commodity market. Empirical testing of cobweb models explored the possibility ‘short run’ supply and demand elasticities could produce temporary market instability.

    • Avatar Eneh Favour Onyinyechi says:

      REG NO: 2020/245914
      DEPARTMENT: ECONOMICS

  93. Avatar Onuah precious onyinyechukwu says:

    Name: Onuah precious Onyinyechukwu
    Reg No: 2020/245130
    Dept: Economics
    course: Eco 201

    1.) Briefly discuss the indifference curve ( including it’s assumptions and criticism)

    An indifference curve is a graphical representation of a combined products that gives similar kind of satisfaction to a consumer thereby making them indifferent.Every point on the indifference curve shows that an individual or a consumer is indifferent between the two products as it gives him the same kind of utility.
    An indifference curve can also be defined as a curve that represents all the combinations of goods that give the same satisfaction to the consumer. Since all the combinations give the same amount of satisfaction, the consumer prefers them equally. Hence the name indifference curve.

    Assumptions of indifference curve

    ✓The consumer is rational to maximize the satisfaction and makes a transitive or consistent choice.

    ✓The consumer is expected to buy any of the two commodities in a combination.

    ✓Consumers can rank a combination of commodities based on their satisfaction levels. Usually, the combination with the higher satisfaction level is preferred.

    ✓The consumer behavior remains constant in the analysis.

    ™The utility is expressed in terms of ordinal numbers.

    ✓Assumes marginal rate of substitution to diminish

    Criticism of the indifference curve
    ✓The Consumer is not Rational:
    The indifference analysis, like the utility theory, assumes that the consumer acts rationally. He is of a calculating mind who carries innumerable combinations of different commodities in his head, can substitute one for the other, compare their total utilities and make a rational choice between various combinations of goods. This is too much to expect of the consumer who has to act under various social, economic and legal constraints.

    Combinations are not based on any Principle:
    Since the combinations are made irrespective of the nature of goods, they often become absurd. How many of us buy 10 pairs of shoes and 8 pants, 6 radios and 5 watches or 4 scooters and 3 cars? Such combinations do not possess any significance for the consumer.

    ✓Fails to Explain the Observed Behaviour of the Consumer:
    Knight argues that the observed market behaviour of the consumer cannot be explained objectively. It is a mistake not to base the analysis of consumer’s demand on the cardinal utility theory.

    ✓Indifference Curves are Non-transitive:
    One of the greatest critics of the indifference hypothesis is W.E. Armstrong who argues that the consumer is indifferent not because he has complete knowledge of the various combinations available to him but because of his inability to judge the difference between alternative combinations.

    ✓Two-Goods Model Unrealistic:
    Again, the two-goods model on which the indifference analysis is based makes the theory unrealistic because a consumer buys not two but a large number of commodities to satisfy his innumerable wants. But the difficulty is that in the case of more than three goods geometry fails and economists will have to depend upon complicated mathematical solutions for analysing the problem of consumer behaviour.

    .) Write short note on budget constraint and utility maximization

    ✓Budget constraint: is an economic term referring to the combined amount of items you can afford within the amount of income available to you. For example, if you are a sales professional with a $1,000 budget for promotional items, this sets the upper limit on items you can purchase. The cost of each item and the minimum quantity you need would determine how many you can buy within your budget.

    The same principle of budget constraint can also be applied to time. If you are a manager, your employees only have a certain number of hours in a workday, which means you need to determine how much of their time they should spend on the various things they need to accomplish. The calculation may vary from week to week as your business priorities change and your employees’ available time adjusts since some weeks include holidays or employees might take time off.

    ✓Utility maximization : is the concept that individuals and organizations seek to attain the highest level of satisfaction from their economic decisions. Utility function measures the intensity to which an individual’s fulfillment is met.

    Utility maximisation also refers to the concept that individuals and firms seek to get the highest satisfaction from their economic decisions.

    For example, when deciding how to spend a fixed some, individuals will purchase the combination of goods/services that give the most satisfaction.

    Utility maximisation can also refer to other decisions – for example, the optimal number of hours for labour to supply their labour. Working more increases income, but reduces leisure time.

    3.) Extensively discuss the cobweb theory

    The cobweb model or cobweb theory is an economic model that explains why prices might be subject to periodic fluctuations in certain types of markets. It describes cyclical supply and demand in a market where the amount produced must be chosen before prices are observed. Producers’ expectations about prices are assumed to be based on observations of previous prices. Nicholas Kaldor analyzed the model in 1934, coining the term “cobweb theorem.

    The cobweb model is generally based on a time lag between supply and demand decisions. Agricultural markets are a context where the cobweb model might apply, since there is a lag between planting and harvesting gives two agricultural examples: rubber and corn). Suppose for example that as a result of unexpectedly bad weather, farmers go to market with an unusually small crop of strawberries. This shortage, equivalent to a leftward shift in the market’s supply curve, results in high prices. If farmers expect these high price conditions to continue, then in the following year, they will raise their production of strawberries relative to other crops. Therefore, when they go to market the supply will be high, resulting in low prices. If they then expect low prices to continue, they will decrease their production of strawberries for the next year, resulting in high prices again.

    The cobweb model can have two types of outcomes:

    If the supply curve is steeper than the demand curve, then the fluctuations decrease in magnitude with each cycle, so a plot of the prices and quantities over time would look like an inward spiral, as shown in the first diagram. This is called the stable or convergent case.
    If the demand curve is steeper than the supply curve, then the fluctuations increase in magnitude with each cycle, so that prices and quantities spiral outwards. This is called the unstable or divergent case.
    Two other possibilities are:

    Fluctuations may also maintain a constant magnitude, so a plot of the outcomes would produce a simple rectangle. This happens in the linear case if the supply and demand curves have exactly the same slope (in absolute value).
    If the supply curve is less steep than the demand curve near the point where the two curves cross, but more steep when we move sufficiently far away, then prices and quantities will spiral away from the equilibrium price but will not diverge indefinitely; instead, they may converge to a limit cycle.
    In either of the first two scenarios, the combination of the spiral and the supply and demand curves often looks like a cobweb, hence the name of the theory.

  94. Avatar Emmanuel patience N says:

    Emmanuel patience N
    Business Education
    Vocational and technical education
    Preciousemmanuel530@gmail.com
    Reg no: 2020/248472
    Number : 08128404287

    An indifference curve is a graphical representation of a consumer’s preferences for a combination of two goods. It shows all the combinations of two goods that provide a consumer with the same level of satisfaction, or utility. Here are some of the assumptions and criticisms of indifference curves:

    Assumptions:

    Rationality: Consumers are assumed to be rational and they always try to maximize their satisfaction or utility.
    Continuity: Indifference curves are continuous and smooth, which means that small changes in the quantities of goods do not lead to sudden jumps in utility.
    Transitivity: Consumers’ preferences are transitive, which means that if a consumer prefers bundle A to bundle B and bundle B to bundle C, then they must also prefer bundle A to bundle C.

    Criticisms:

    Difficulty in constructing: Constructing indifference curves can be difficult because it’s challenging to measure the utility a consumer gets from a combination of goods.
    Income and substitution effects: Indifference curves don’t take into account income and substitution effects, which can have an impact on a consumer’s preferences and behavior.
    No accounting for market prices: Indifference curves don’t account for market prices, which can be an important factor in a consumer’s decision-making process.
    Despite these criticisms, indifference curves remain a useful tool for analyzing consumer behavior and predicting how consumers will react to changes in the prices of goods or their incomes

    Budget constraint and utility maximization are two key concepts in microeconomics.

    Budget constraint refers to the limitation on an individual’s or a household’s spending, which is determined by their income and the prices of goods and services they wish to purchase. It is represented by the equation:

    Income = Price of Good X Quantity of Good X + Price of Good Y Quantity of Good Y

    This equation shows that an individual or household has a limited amount of income that they can allocate towards purchasing different goods, subject to the prices of those goods.

    Utility maximization, on the other hand, is the concept that individuals or households seek to maximize their total satisfaction or utility from consuming different goods subject to their budget constraint. In other words, individuals aim to get the most happiness or satisfaction from their limited budget.

    To achieve this goal, individuals or households allocate their budget towards purchasing goods that give them the most utility, based on their preferences and tastes. The optimal combination of goods that maximizes their utility is the one where the marginal utility per dollar spent on each good is equal.

    Overall, the budget constraint and utility maximization concepts help explain how individuals and households make consumption decisions based on their limited resources and preferences

    The Cobweb theory is an economic theory that explains fluctuations in the prices of goods, especially agricultural products. This theory is named after the spiral-like pattern of fluctuations that resemble a cobweb that is often observed in the prices of these products. The theory proposes that prices of agricultural products can fluctuate over time because the supply of these products takes time to adjust to changes in demand.

    The Cobweb theory assumes that producers base their production decisions on the prices of goods in the previous period. Thus, when the price of a commodity increases, producers increase their production in the following period. However, since it takes time for producers to adjust their production levels, there is a lag between the increase in demand and the increase in supply. As a result, in the next period, the supply of the commodity increases more than the demand, which causes a decrease in the price of the commodity.

    Similarly, when the price of a commodity decreases, producers decrease their production in the following period, but again, there is a lag between the decrease in demand and the decrease in supply. As a result, in the next period, the supply of the commodity decreases more than the demand, which causes an increase in the price of the commodity.

    This process of fluctuations in prices can continue in a cyclical manner, leading to the cobweb-like pattern of price fluctuations. The theory suggests that the size of the cycles can be affected by various factors such as the time it takes for production to adjust, the degree of competition in the market, and the elasticity of demand and supply.

    The Cobweb theory is an important concept in agricultural economics and provides insight into the behavior of prices in commodity markets. However, the theory has been subject to criticism due to its assumptions that may not hold in real-world markets. For example, the theory assumes that all producers have the same information and act rationally, which may not be the case in real-world markets where there may be information asymmetries and irrational behavior. Additionally, the theory assumes that the demand and supply curves are linear, which may not hold in reality.

  95. Avatar Okwudili Esther Mmesoma says:

    NAME: OKWUDILI ESTHER MMESOMA
    REG NO: 2020/242613
    DEPARTMENT: ECONOMICS
    EMAIL: esther.okwudili.242613@unn.edu.ng

    INDIFFERENCE CURVE
    An indifference curve is a graph showing combination of two goods that give the consumer equal satisfaction and utility. Each point on an indifference curve indicates that a consumer is indifferent between the two and all points give him the same utility.
    Graphically, the indifference curve is drawn as a downward sloping convex to the origin. The graph shows a combination of two goods that the consumer consumes.

    ASSUMPTIONS OF AN INDIFFERENCE CURVE
    The indifference curve analysis retains some of the assumptions of the cardinal theory, rejects others and formulates its own. The assumptions of the ordinal theory are the following:
    (1) The consumer acts rationally so as to maximize satisfaction.
    (2) There are two goods X and Y.
    (3) The consumer possesses complete information about the prices of the goods in the market.
    (4) The prices of the two goods are given.
    (5) The consumer’s tastes, habits and income remain the same throughout the analysis.
    (6) He prefers more of X to less of У or more of Y to less of X.
    (7) An indifference curve is negatively inclined sloping downward.
    (8) An indifference curve is always convex to the origin.
    (9) An indifference curve is smooth and continuous which means that the two goods are highly divisible and those levels of satisfaction also change in a continuous manner.
    (10) The consumer arranges the two goods in a scale of preference which means that he has both ‘preference’ and ‘indifference’ for the goods. He is supposed to rank them in his order of preference and can state if he prefers one combination to the other or is indifferent between them.

    CRITICISMS OF AN INDIFFERENCE CURVE
    The indifference curve analysis is no doubt regarded superior to the utility analysis, but critics are not lacking in denouncing it. The main points of criticism are discussed below.
    1) Assumptions of the analysis are unrealistic.
    2) It does no take into account the risk of the choices.
    3) It also has a weak ordering hypothesis.

    BUDGET CONSTRAINT
    A budget constraint occurs when a consumer is limited in consumption patterns by a certain income.
    When looking at the demand schedule we often consider effective demand. Effective demand is what people are actually able to spend given their limitations of income.
    Temporary budget constraints can be overcome by borrowing, but in the long term budget constraints are determined by income such as rent and wages.
    The budget constraint is the boundary of the opportunity set, all possible combinations of consumption that someone can afford given the prices of goods and the individual’s income.
    Opportunity cost measures cost in terms of what must be given up in exchange.

    UTILITY MAXIMIZATION
    Utility maximization refers to the concept that individuals and firms seek to get the highest satisfaction from their economic decisions.
    For example, when deciding how to spend a fixed some, individuals will purchase the combination of goods/services that give the most satisfaction.
    Utility maximization can also refer to other decisions , for example, the optimal number of hours for labour to supply their labour. Working more increases income, but reduces leisure time.

    COBWEB THEORY
    Cobweb theory is the idea that price fluctuations can lead to fluctuations in supply which cause a cycle of rising and falling prices.
    In a simple cobweb model, we assume there is an agricultural market where supply can vary due to variable factors, such as the weather.

    ASSUMPTIONS OF COBWEB THEORY
    ★In an agricultural market, farmers have to decide how much to produce a year in advance – before they know what the market price will be. (supply is price inelastic in short-term)
    ★A key determinant of supply will be the price from the previous year.
    ★A low price will mean some farmers go out of business. Also, a low price will discourage farmers from growing that crop in the next year.
    ★Demand for agricultural goods is usually price inelastic (a fall in price only causes a smaller % increase in demand.

    COBWEBS HAVE BEEN DIVIDED INTO:
    (1) Continuous Cobwebs,
    (2) Divergent Cobwebs, and
    (3) Convergent Cobwebs.

    In the case of continuous Cobweb the fluctuations in price and output continues repeating about equilibrium at same level. In the case of diverging Cobweb the amplitude of the fluctuation increases with the passage of time. Once disturbed from position of equilibrium the economy moves cumulatively away from it into the doledrums of disequilibrium.
    This happens when the slope of the supply curve is less steep than the slops of demand curve. In the case of converging cobweb the economy, if and when disturbed from its equilibrium position, has a tendency to regain it through a series of oscillations. Each fluctuation is more damped than the one preceding it. This narrowing down of the amplitude of the fluctuations occurs when the slope of the supply curve is steeper than the slope of demand curve.

  96. Avatar Emmanuel patience N says:

    Emmanuel patience N
    Business Education
    Vocational and technical education
    Preciousemmanuel530@gmail.com
    Reg no: 2020/248472
    Number : 08128404287

    An indifference curve is a graphical representation of a consumer’s preferences for a combination of two goods. It shows all the combinations of two goods that provide a consumer with the same level of satisfaction, or utility. Here are some of the assumptions and criticisms of indifference curves:

    Assumptions:

    Rationality: Consumers are assumed to be rational and they always try to maximize their satisfaction or utility.
    Continuity: Indifference curves are continuous and smooth, which means that small changes in the quantities of goods do not lead to sudden jumps in utility.
    Transitivity: Consumers’ preferences are transitive, which means that if a consumer prefers bundle A to bundle B and bundle B to bundle C, then they must also prefer bundle A to bundle C.

    Criticisms:

    Difficulty in constructing: Constructing indifference curves can be difficult because it’s challenging to measure the utility a consumer gets from a combination of goods.
    Income and substitution effects: Indifference curves don’t take into account income and substitution effects, which can have an impact on a consumer’s preferences and behavior.
    No accounting for market prices: Indifference curves don’t account for market prices, which can be an important factor in a consumer’s decision-making process.
    Despite these criticisms, indifference curves remain a useful tool for analyzing consumer behavior and predicting how consumers will react to changes in the prices of goods or their incomes

    Budget constraint and utility maximization are two key concepts in microeconomics.

    Budget constraint refers to the limitation on an individual’s or a household’s spending, which is determined by their income and the prices of goods and services they wish to purchase. It is represented by the equation:

    Income = Price of Good X Quantity of Good X + Price of Good Y Quantity of Good Y

    This equation shows that an individual or household has a limited amount of income that they can allocate towards purchasing different goods, subject to the prices of those goods.

    Utility maximization, on the other hand, is the concept that individuals or households seek to maximize their total satisfaction or utility from consuming different goods subject to their budget constraint. In other words, individuals aim to get the most happiness or satisfaction from their limited budget.

    To achieve this goal, individuals or households allocate their budget towards purchasing goods that give them the most utility, based on their preferences and tastes. The optimal combination of goods that maximizes their utility is the one where the marginal utility per dollar spent on each good is equal.

    Overall, the budget constraint and utility maximization concepts help explain how individuals and households make consumption decisions based on their limited resources and preferences

    The Cobweb theory is an economic theory that explains fluctuations in the prices of goods, especially agricultural products. This theory is named after the spiral-like pattern of fluctuations that resemble a cobweb that is often observed in the prices of these products. The theory proposes that prices of agricultural products can fluctuate over time because the supply of these products takes time to adjust to changes in demand.

    The Cobweb theory assumes that producers base their production decisions on the prices of goods in the previous period. Thus, when the price of a commodity increases, producers increase their production in the following period. However, since it takes time for producers to adjust their production levels, there is a lag between the increase in demand and the increase in supply. As a result, in the next period, the supply of the commodity increases more than the demand, which causes a decrease in the price of the commodity.

    Similarly, when the price of a commodity decreases, producers decrease their production in the following period, but again, there is a lag between the decrease in demand and the decrease in supply. As a result, in the next period, the supply of the commodity decreases more than the demand, which causes an increase in the price of the commodity.

    This process of fluctuations in prices can continue in a cyclical manner, leading to the cobweb-like pattern of price fluctuations. The theory suggests that the size of the cycles can be affected by various factors such as the time it takes for production to adjust, the degree of competition in the market, and the elasticity of demand and supply.

    The Cobweb theory is an important concept in agricultural economics and provides insight into the behavior of prices in commodity markets. However, the theory has been subject to criticism due to its assumptions that may not hold in real-world markets. For example, the theory assumes that all producers have the same information and act rationally, which may not be the case in real-world markets where there may be information asymmetries and irrational behavior. Additionally, the theory assumes that the demand and supply curves are linear, which may not hold in reality.

  97. Avatar NEBECHI ONYEKACHI EDITH says:

    2017/251635
    Department of Business Education
    1: indifference curve is a graphical representation of a combined products that gives similar kind of satisfaction to a customer. With the assumption that consumer is rational to the maximum satisfaction and makes a transitive or consistent choice.
    2: Budget constraints indicates the combinations of the two goods purchased given the consumer’s income and prices of the two goods.
    Utility maximization is how they seek that combination of good that allows them to reach the highest indifference curve given their budget constraints.
    3: Cobweb theory is an economic model that explains why prices might be subject to periodic fluctuations in certain types of market. It’s describes cyclical supply and demand in a market where the amount produced must be chosen before prices are observed.

  98. Avatar Ayogu madeliene ukamaka says:

    Name: Ayogu madeliene ukamaka
    Reg:2020/242568
    Dept: Economics
    Email: Madeleineukamaka@gmail.com

    In economics, an indifference curve connects points on a graph representing different quantities of two goods, points between which a consumer is indifferent. That is, any combination she of two products indicated by the curve will provide the consumer with equal levels of utility, and the consumer has no preference for one combination or bundle of goods over a different combination on the same curve. One can also refer to each point on the indifference curve as rendering the same level of utility (satisfaction) for the consumer.
    Assumptions of Indifference Curve
    (1) The consumer acts rationally so as to maximise satisfaction.

    (2) There are two goods X and Y.

    (3) The consumer possesses complete information about the prices of the goods in the market.
    (4) The prices of the two goods are given.

    (5) The consumer’s tastes, habits and income remain the same throughout the analysis.
    Criticisms of indifference curve
    1. Unrealistic assumptions:
    It is based on unrealistic assumptions of rationality, perfect competition, divisibility of goods and perfect knowledge of scale or preference.

    The purchases of a consumer arc very much affected by habits, customs and fashion. Therefore, a consumer does not act always rationally. We cannot expect a consumer to know his indifference map. Goods Visible and perfect completion is a myth.

    2. No novelty:This technique is similar to the utility analysis because it merely gave new names to old terms. The concept of utility is replaced by scale of preference, tendency of diminishing marginal utility is replaced by diminishing marginal rate of substitution and cordinal numbers such as 1, 2, 3 etc., were labelled as ordinal numbers I, II, III, etc.

    The conditions of equilibrium in both analysis are similar. According to utility analysis the consumer is in equilibrium when:

    MUX / MUy = Px/ Py.
    3. Indifference curve is non-transitive:
    It was argued that a consumer is indifferent between close alternative combinations only because he is not able to perceive the difference between the two.

    But as the difference of combinations increases, the difference in the satisfaction of different combinations becomes evident and so the different combinations on the same indifference curve do not yield equal satisfaction.

    Thus,the argument wass accepted different points on an indifference curve give different satisfaction. The indifference curve will become non-transitive.

    4. Fails to explain risky choice:
    Indifference curve analysis is criticized on the ground that it cannot explain consumer behaviour when he has to choose among alternatives involving risk or uncertainty of expectation.

    To make a choice among uncertain alternatives quantitative measurement of utility is needed to decide whether the risk is worth taking. In such situations cordinal system of utility can explain consumer bahaviour.

    5. Absurd and unrealistic combinations:
    Indifference curve analysis is based on hypothetical combinations. When we consider different combinations of two goods, then there may be some combinations that are meaningless and cannot be possible in real life.
    2 BUDGET CONSTRAINT
    Consumer behaviour is a maximisation problem. It means making the most of our limited resources to maximise our utility. As consumers are insatiable, and utility functions grow with quantity, the only thing that limits our consumption is our own budget (assuming, of course, we are dealing with normal goods, not negative or harmful goods which consumption we want to limit).

    A budget constraint provides the second half of the maximisation problem. We need to balance the utility we derive from consumption with the budget we have.

    Supposing we have a choice of two goods, 1 and 2, then our restriction is as follows:

    formula-Budget-constraint

    which simply means that our budget must be at least as much as the price of the two goods times their respective price.

    This simply shows that our consumption is capped and that the more we spend on one good, the less we can on the other.
    UTILITY MAXIMIZATION

    Utility maximisation is the concept that consumers and businesses seek to maximise their satisfaction or utility from their purchases.So neither consumers nor businesses choose an option which would provide a lower level of utility over another option. For example, a consumer in the store is faced with the choice between two chocolate bars. They are both priced at #100 each. Chocolate bar A gives the consumer a utility of #100, whilst Chocolate bar B provides a utility of #0.95.
    In turn, the consumer logically picks Chocolate bar A as it provides the greatest amount of utility. Consumers will pick what provides them the greatest satisfaction at any certain point in time. However, that decision of maximising utility may change the next day as they value Chocolate bar B more.Utility is maximised when price is equal to marginal utility. The issue is that there are many goods in the market that the consumer can spend their money on. For instance, the utility received by Consumer A in consuming a bag of chips will start to decline after one bag. In fact, it may decline below its actual price meaning the consumer no longer wants to buy anymore.

    However, utility is only maximised when there is no other good that represents a utility value that is equal or greater than a goods price. For instance, Consumer A may no longer receive further utility from a bag of chips, but would from a bar of chocolate. Only once Consumer A no longer receives a utility that is greater than the price will utility be maximised.

    Cobweb theory

    Cobweb theory is the idea that price fluctuations can lead to fluctuations in supply which cause a cycle of rising and falling prices.

    In a simple cobweb model, we assume there is an agricultural market where supply can vary due to variable factors, such as the weather.

    Assumptions of Cobweb theory

    In an agricultural market, farmers have to decide how much to produce a year in advance – before they know what the market price will be. (supply is price inelastic in short-term)
    A key determinant of supply will be the price from the previous year.
    A low price will mean some farmers go out of business. Also, a low price will discourage farmers from growing that crop in the next year.
    Demand for agricultural goods is usually price inelastic (a fall in price only causes a smaller % increase in demand

    Limitations of Cobweb theory

    Rational expectations. The model assumes farmers base next years supply purely on the previous price and assume that next year’s price will be the same as last year (adaptive expectations). However, that rarely applies in the real world. Farmers are more likely to see it as a ‘good’ year or ‘bad year and learn from price volatility.

    Price divergence is unrealistic and not empirically seen. The idea that farmers only base supply on last year’s price means, in theory, prices could increasingly diverge, but farmers would learn from this and pre-empt changes in price.

    It may not be easy or desirable to switch supply. A potato grower may concentrate on potatoes because that is his speciality. It is not easy to give up potatoes and take to aubergines.

    Other factors affecting price. There are many other factors affecting price than a farmers decision to supply. In global markets, supply fluctuations will be minimized by the role of importing from abroad. Also, demand may vary. Also, supply can vary due to weather factors.

    Buffer stock schemes. Governments or producers could band together to limit price volatility by buying surplus

  99. Avatar Emmanuel patience N says:

    Emmanuel patience N
    Preciousemmanuel530@gmail.com
    Reg no: 2020/248472
    Number : 08128404287

    An indifference curve is a graphical representation of a consumer’s preferences for a combination of two goods. It shows all the combinations of two goods that provide a consumer with the same level of satisfaction, or utility. Here are some of the assumptions and criticisms of indifference curves:

    Assumptions:

    Rationality: Consumers are assumed to be rational and they always try to maximize their satisfaction or utility.
    Continuity: Indifference curves are continuous and smooth, which means that small changes in the quantities of goods do not lead to sudden jumps in utility.
    Transitivity: Consumers’ preferences are transitive, which means that if a consumer prefers bundle A to bundle B and bundle B to bundle C, then they must also prefer bundle A to bundle C.

    Criticisms:

    Difficulty in constructing: Constructing indifference curves can be difficult because it’s challenging to measure the utility a consumer gets from a combination of goods.
    Income and substitution effects: Indifference curves don’t take into account income and substitution effects, which can have an impact on a consumer’s preferences and behavior.
    No accounting for market prices: Indifference curves don’t account for market prices, which can be an important factor in a consumer’s decision-making process.
    Despite these criticisms, indifference curves remain a useful tool for analyzing consumer behavior and predicting how consumers will react to changes in the prices of goods or their incomes

    Budget constraint and utility maximization are two key concepts in microeconomics.

    Budget constraint refers to the limitation on an individual’s or a household’s spending, which is determined by their income and the prices of goods and services they wish to purchase. It is represented by the equation:

    Income = Price of Good X Quantity of Good X + Price of Good Y Quantity of Good Y

    This equation shows that an individual or household has a limited amount of income that they can allocate towards purchasing different goods, subject to the prices of those goods.

    Utility maximization, on the other hand, is the concept that individuals or households seek to maximize their total satisfaction or utility from consuming different goods subject to their budget constraint. In other words, individuals aim to get the most happiness or satisfaction from their limited budget.

    To achieve this goal, individuals or households allocate their budget towards purchasing goods that give them the most utility, based on their preferences and tastes. The optimal combination of goods that maximizes their utility is the one where the marginal utility per dollar spent on each good is equal.

    Overall, the budget constraint and utility maximization concepts help explain how individuals and households make consumption decisions based on their limited resources and preferences

    The Cobweb theory is an economic theory that explains fluctuations in the prices of goods, especially agricultural products. This theory is named after the spiral-like pattern of fluctuations that resemble a cobweb that is often observed in the prices of these products. The theory proposes that prices of agricultural products can fluctuate over time because the supply of these products takes time to adjust to changes in demand.

    The Cobweb theory assumes that producers base their production decisions on the prices of goods in the previous period. Thus, when the price of a commodity increases, producers increase their production in the following period. However, since it takes time for producers to adjust their production levels, there is a lag between the increase in demand and the increase in supply. As a result, in the next period, the supply of the commodity increases more than the demand, which causes a decrease in the price of the commodity.

    Similarly, when the price of a commodity decreases, producers decrease their production in the following period, but again, there is a lag between the decrease in demand and the decrease in supply. As a result, in the next period, the supply of the commodity decreases more than the demand, which causes an increase in the price of the commodity.

    This process of fluctuations in prices can continue in a cyclical manner, leading to the cobweb-like pattern of price fluctuations. The theory suggests that the size of the cycles can be affected by various factors such as the time it takes for production to adjust, the degree of competition in the market, and the elasticity of demand and supply.

    The Cobweb theory is an important concept in agricultural economics and provides insight into the behavior of prices in commodity markets. However, the theory has been subject to criticism due to its assumptions that may not hold in real-world markets. For example, the theory assumes that all producers have the same information and act rationally, which may not be the case in real-world markets where there may be information asymmetries and irrational behavior. Additionally, the theory assumes that the demand and supply curves are linear, which may not hold in reality.

  100. Avatar Okechukwu prosper onyedikachukwu says:

    name. okechukwu prosper onyedikachukwu
    department. Business education
    Reg number. 2020/242139
    course no. ECO 201.
    1. indifference curve its assumption and criticism.
    An indifference curve shows a combination of two goods in various quantities that provides equal satisfaction (utility) to an individual.
    It’s criticism
    indifference curve is said to make unrealistic assumptions about human behaviour. it is unable to explain risky choices undertaken by the consumer. it has been criticized for being an old wine in a new bottle for it has merely rehashed the concept of diminishing marginal utility of a product in a new terms.
    It’s assumptions
    The indifference curve assumptions says the consumer is rational to maximize the satisfaction and makes a transitive or consistent choice.

    Budget constraint
    In economics, a budget constraint represent all the combination of goods and services that a consumer may purchase given current prices within his or her given income. consumer theory uses the concepts of a budget constraint and a preference map as tools to examine the parameters of consumer choices. Both concept have a ready graphical representation in the two good case. The consumer can only purchase as much as their income will allow, hence they are constrained to budget.
    Utility Maximization
    This concept that individuals and organisations seek to attain the highest level of satisfaction from their economic decisions. Utility function measures the intensity to which an individual fulfillment met.

    Cobweb Theory
    Cobweb Theory us the idea that price fluctuation can lead to fluctuation in supply which causes a cycle of rising and falling prices.
    Cobweb Theory has played an essential role incorporating both features as explanation for endogenicty of price and production cycles in commodity markets.
    Limitations of cobweb Theory.
    1. rational expectations
    2. price divergence is unrealistic and not empirically seen.
    3. it may not be easy or desirable to switch supply.
    4. other factors affecting price.
    5. Buffer stock schemes. Government or producers could band together to limit price volatility by buying surplus.

  101. Avatar Sunny Precious Ogochukwu says:

    NAME: SUNNY PRECIOUS OGOCHUKWU
    REG NO: 2020/245604
    COURSE TITLE: MICROECONOMICS 1
    COURSE CODE: ECO 201
    DEPARTMENT: COMBINED SOCIAL SCIENCE ( ECONOMICS AND PHILOSOPHY)

    1.) INDIFFERENCE CURVE: Indifference curve shows a combination of two goods in various quantities that provides equal satisfaction (utility) to an individual. Indifference curve are heuristic device used in contemporary microeconomics to demonstrate consumer preference and the limitations of a budget.
    The slope of the Indifference curve is known as the marginal rate of substitution (MRS). The MRS is the rate at which the consumer is willing to give up one goods for another.
    ASSUMPTION: There is a defined indifference map showing the consumer’s scale of preference across different combinations of two goods X and Y. The consumer has a fixed money income and wants to spend it completely on the goods X and Y. The prices of the goods X and Y are fixed for the consumer.
    THREE ASSUMPTION OF INDIFFERENCE CURVE
    * Consumer is rational.
    * Price of goods is constant.
    * Consumers spend a small part of their income.
    FOUR PROPERTIES OF INDIFFERENCE CURVE
    * Indifference curve can never cross.
    * The farther out an indifference curve lies, the higher the utility it indicates.
    * Indifference curve always slope downwards.
    * Indifference curve are convex.
    CRITICISM
    Indifference curve is said to make unrealistic assumption about human behaviours. It is unable to explain risky choices undertaken by the consumer. It has been criticized for being an “old wine in a new bottle” for it has merely rehashed the concept of diminishing marginal utility of a product in net terms.
    It is theoretically possible to have concave in difference curve or even circular curves that are either convex or concave to the origin at various points.
    2.) BUDGET CONSTRAINTS: Budget constraint is the boundary of the opportunity set all possible combination of consumption that someone can afford given the price of goods and the individual’s income.
    A budget constraints occurs when a consumer is limited in consumption pattern by a certain income. When we are looking at demand schedule we consider effective demand.
    Effective demand is what people are actually able to spend given their limitations of income.
    Another term for budget constraint is budgetary restrictions.
    2ii) UTILITY MAXIMIZATION: It is a strategic scheme where by individual and companies seek to achieve the highest level of satisfaction from their economic decision.
    The concept utility MAXIMIZATION was developed by the utilituarian philosophers Jeremy Bentham and John stuant mill.
    Utility function measures the intensity to which an individual fulfillment is met .
    Economic utility deceases with the increase in the consumption of a goods and services.
    3.) COBWEB THEORY: Cobweb theory is the idea that price fluctuations can lead to fluctuation to supply which cause a cycle of rising and falling price.
    It surrounding the stability of market equilibrium and the connection to processes with rational expectation is assessed.
    ASSUMPTION OF CEBWEB
    We assume there is an agricultural market where supply can varry due to variable factors ,such as weather.

  102. Avatar Onyinye Nsude says:

    Name: Nsude Onyinyechi Gift
    Reg/no: 2020/245128
    Answers
    1) Briefly discuss the indifference curve including it’s assumption and criticism
    The indifference curve is a chart showing various combinations of two goods or commodities that leave the consumer equally satisfied. For instance, if you like both milo and ovaltine, you may be indifferent to buying either 20 milo and no ovaltine, 45 ovaltine and no milo, or some combination of the two.
    Standard indifference curve analysis operates using a simple two-dimensional chart. Each axis represents one type of economic good. Along the indifference curve, the consumer is indifferent between any of the combinations of goods represented by points on the curve because the combination of goods on an indifference curve provides the same level of utility to the consumer.
    Indifference curves operate under many assumptions; for example, each indifference curve is typically convex to the origin, and no two indifference curves ever intersect. Consumers are always assumed to be more satisfied when achieving bundles of goods on indifference curves that are farther from the origin.

    As income increases, an individual will typically shift their consumption level because they can afford more commodities, with the result that they will end up on an indifference curve that is farther from the origin—hence better off.
    Many core principles of microeconomics appear in indifference curve analysis, including individual choice, marginal utility theory, income, substitution effects, and the subjective theory of value. Indifference curve analysis emphasizes marginal rates of substitution (MRS) and opportunity costs. Indifference curve analysis typically assumes that all other variables are constant or stable.
    Most economic textbooks build upon indifference curves to introduce the optimal choice of goods for any consumer based on that consumer’s income. Classic analysis suggests that the optimal consumption bundle takes place at the point where a consumer’s indifference curve is tangent with their budget constraint.
    Criticisms and Complications of the Indifference Curve
    Indifference curves, like many aspects of contemporary economics, have been criticized for oversimplifying or making unrealistic assumptions about human behavior.
    For example, consumer preferences might change between two different points in time, rendering specific indifference curves practically useless. Other critics note that it is theoretically possible to have concave indifference curves or even circular curves that are either convex or concave to the origin at various points.

    2)Write short note on budget constraint and utility maximization
    Budget Constraint
    The budget constraint indicates the combinations of the two goods that can be purchased given the consumer’s income and prices of the two goods. The intercept points of the budget constraint are computing by dividing the income by the price of the good. For example, if the consumer had $8 to spend and the price of pizza was $2 and shakes were $1, then the consumer could buy Budget Constraint

    The budget constraint indicates the combinations of the two goods that can be purchased given the consumer’s income and prices of the two goods. The intercept points of the budget constraint are computing by dividing the income by the price of the good. For example, if the consumer had $8 to spend and the price of donut was $2 and Fanta were $1, then the consumer could buy four donut I s ($8/$2) or eighth Fanta($8/$1). Any combination of the two goods that are on or beneath the budget constraint are affordable, while those to the outside (farther from the origin) are unaffordable.
    A greater income will cause a parallel shift rightward of the budget constraint while a decrease in income will cause a parallel shift leftward. four donut ($8/$2) or eight fanta ($8/$1). Any combination of the two goods that are on or beneath the budget constraint are affordable, while those to the outside (farther from the origin) are unaffordable.
    A greater income will cause a parallel shift rightward of the budget constraint while a decrease in income will cause a parallel shift leftward.
    Utlity Maximization
    Given the goal of consumers is to maximize utility given their budget constraints, they seek that combination of goods that allows them to reach the highest indifference curve given their budget constraint. This occurs where the indifference curve is tangent to the budget constraint (combination A). Note that combinations B and C cost the same amount as A; however, A is on a higher indifference curve. Combination D yields that same utility as C and B but doesn’t use all of the income, thus the consumer can increase utility by consuming more. Combination E is preferred to combination A, but is unattainable given the budget constraint. The demand curve can be derived from the indifference curves and budget constraints by changing the price of the good. For example, if the price of pizza is $4, the quantity demanded of pizza is two. If the price of pizza decreases, the budget constraint becomes flatter and the consumer can purchase more pizza, say the price of pizza drops to $2 and consumer purchases 4 units. If the price drops to $1.33, the quantity demanded increases to 5. Plotting each of the price and quantity demanded points creates the demand curve for pizza.

    3) Extensively discuss cobwebs theory
    Cobweb theory is the idea that price fluctuations can lead to fluctuations in supply which cause a cycle of rising and falling prices.

    In a simple cobweb model, we assume there is an agricultural market where supply can vary due to variable factors, such as the weather.
    Assumptions of Cobweb theory
    In an agricultural market, farmers have to decide how much to produce a year in advance – before they know what the market price will be. (supply is price inelastic in short-term)
    A key determinant of supply will be the price from the previous year.
    A low price will mean some farmers go out of business. Also, a low price will discourage farmers from growing that crop in the next year.
    Demand for agricultural goods is usually price inelastic (a fall in price only causes a smaller % increase in demand)

    If there is a very good harvest, then supply will be greater than expected and this will cause a fall in price.
    However, this fall in price may cause some farmers to go out of business. Next year farmers may be put off by the low price and produce something else. The consequence is that if we have one year of low prices, next year farmers reduce the supply.
    If supply is reduced, then this will cause the price to rise.
    If farmers see high prices (and high profits), then next year they are inclined to increase supply because that product is more profitable.
    In theory, the market could fluctuate between high price and low price as suppliers respond to past prices.
    Cobweb theory and price divergence
    Price will diverge from the equilibrium when the supply curve is more elastic than the demand curve, (at the equilibrium point) If the slope of the supply curve is less than the demand curve, then the price changes could become magnified and the market more unstable.
    Cobweb theory and price convergence

    At the equilibrium point, if the demand curve is more elastic than the supply curve, we get the price volatility falling, and the price will converge on the equilibrium

    Limitations of Cobweb theory
    Rational expectations. The model assumes farmers base next years supply purely on the previous price and assume that next year’s price will be the same as last year (adaptive expectations). However, that rarely applies in the real world. Farmers are more likely to see it as a ‘good’ year or ‘bad year and learn from price volatility.

    Price divergence is unrealistic and not empirically seen. The idea that farmers only base supply on last year’s price means, in theory, prices could increasingly diverge, but farmers would learn from this and pre-empt changes in price.

    It may not be easy or desirable to switch supply. A potato grower may concentrate on potatoes because that is his speciality. It is not easy to give up potatoes and take to aubergines.

    Other factors affecting price. There are many other factors affecting price than a farmers decision to supply. In global markets, supply fluctuations will be minimized by the role of importing from abroad. Also, demand may vary. Also, supply can vary due to weather factors.

    Buffer stock schemes. Governments or producers could band together to limit price volatility by buying surplus
    Possible examples of Cobweb theory
    Housing
    Housing is very inelastic and subject to booms and bust. In response to the housing boom in Ireland, supply increased. But, the price collapsed, leading to a big fall in the building of new housing. Tamari, (1981) argued there was evidence of cobweb nature of the Israeli housing market.

  103. Avatar Odo perpetua Chidimma says:

    odo perpetua Chidimma
    2020/242341
    business education

    indifference curve is a chart showing various combination of two goods or commodities that leave the consumer equally well off or equally satisfied. hence indifferent when it comes having any combination between the two items that is shown along the curve. indifference curve operate under many assumptions; for example, each indifference curve is typically convex to the origin, and no two indifference curve ever intersect. Indifference curve,like many aspect of contemporary economy, have been criticized for over simplifying or making unrealistic assumptions about human behaviour.
    (2)

  104. Avatar ONAH JUDITH UGOCHI says:

    NAME: ONAH JUDITH UGOCHI
    REG/NO: 2020/242646
    DEPT: ECONOMICS.

    1) An indifference curve (IC) is a graph that shows different combinations or, consumption bundles of two goods or commodities that gives equivalent levels of satisfaction or utility to a consumer. In economics, the indifference curve helps in understanding a consumer’s preferences.

    ASSUMPTIONS.

    1) Utility is usually ranked based on the level of satisfaction derived from combining commodities.

    2) Utility is conveyed in terms of ordinal numbers.

    3) Diminishing of the marginal rate of substitution.

    4) Consumers’ behavior is constant.

    5) Consumer choice is said to be transitive or consistent in terms of rational maximization of utility.

    CRITICISMS.

    1) It is based on Unrealistic Assumption of Perfect Competition

    2) Two-goods Model is unrealistic.

    3) All commodities are not divisible

    4) Consumer is not Rational

    5) It fails to explain the observed behavior of the consumer.

    2)

    A) BUDGET CONSTRAINT

    Consumers can not afford to buy everything they desire and so, they are forced into making choices according to their preferences based on the available options. Budget constraint, therefore, is a limitation imposed on consumer choice by their limited budget. The budget constraint shows all possible combinations of consumption that a consumer can afford based on the prices of goods and the individual’s income. The formula for the budget constraint is 1 × Q 1 + P 2 × Q 2 = I

    B) UTILITY MAXIMIZATION

    Consumers are rational, and seek to extract the most benefit for themselves. Utility maximization, therefore, is a concept in consumer theory that illustrates how consumers decide to allocate their income to maximize their utility.

    3)

    COBWEB THEORY

    The theory in economics that defines the subjective instabilities of price in the market is referred to as the Cobweb theory. The Cobweb theory explains the fact that changes in the price lead to fluctuation in supply and further cause a cycle of rising and falling prices.

    Cobwebs have been divided into:

    (1) Continuous Cobwebs: Here, the fluctuations in price and output continue repeating about equilibrium at the same level. In other words, the elasticity of supply is equal to the elasticity of demand.

    (2) Divergent Cobwebs: Here, the amplitude of the fluctuation increases with the passage of time and the elasticity of supply is greater than the elasticity of demand.

    (3) Convergent Cobwebs: Here, supply is less elastic than demand.

    limitations of cobweb theory include;

    1) Rational expectations

    2) Price divergence is unrealistic and not empirically seen.

    3) It may not be easy or desirable to switch supply

    4) Other factors affecting the price

  105. Avatar Okenwa Eunice Chiyere Reg no: 2020/242140 says:

    NAME:OKENWA EUNICE CHIYERE
    REG NO: 2020/242140
    EMAIL:chiyereeunice@gmail .com

    MEANING OF INDIFFERENCE CURVE.
    An indifference curve (IC) is a graphical representation of different combinations or consumption bundles of two commodities, providing equal levels of satisfaction and utility for the consumer. It denotes a set of different combinations of two commodities or goods providing the same level of satisfaction to the consumer.
    It is downward-sloppy and negative. The indifference curve in economics examines demand patterns for commodity combinations, budget constraint and helps to understand customer preferences.

    ASSUMPTIONS OF INDIFFERENCE CURVE.
    ➢ The consumer is rational to maximize the satisfaction and makes a transitive or consistent choice.
    ➢ Consumers can rank a combination of commodities based on their satisfaction levels. That is, the combination with the higher satisfaction level is preferred.
    ➢ The utility is expressed in terms of ordinal numbers.
    ➢ It assumes that marginal rate of substitution diminish .
    ➢ Price of goods is constant.
    ➢ Two indifference curve (IC) can never intersect each other.

    CRITICISMS OF INDIFFERENCE CURVE.
    ➢ UNREALISTIC ASSUMPTION: It is based on unrealistic of rationally, perfect competition, divisibility of goods and perfect knowledge of scale or preference. The purchases of a consumer are very much affected by habits, customs and fashion. We can then say a consumer does not act always rationally.
    ➢ IT IS NON-TRANSITIVE: According to prof.W.E. Armstrong he argued that a consumer is indifferent between close alternative combinations only because he is not able to perceive the difference between the two. But as the difference of combinations increases, the difference in the satisfaction of different becomes evident so the different combinations on the same indifference curve do not yield equal satisfaction.
    ➢ IT IS SAID TO BE OLD WINE IN NEW BOTTLES: Professor Robertson does not find anything new in the indifference curve technique and regards it simply as “the old wine in a new bottle”. It substitutes the concept of preference for utility. It replaces introspective cardinalism by introspective ordinalism .
    ➢ BASED ON WEAK ORDERING: Indifference curve based on the weak ordering hypothesis. That is, a consumer can be indifference between a large number of combinations. But, according to professor Samuelson, it is not possible to find many situations of indifference in real world . Because the weak ordering makes it subjective in nature.

    BUDGET CONSTRAINT: Budget constraint is the total amount of items you can afford within a current budget. It illustrates the range of choices available within that budget. It is also said to be an economic term referring to the combined amount of items you can afford with the amount of income available to you. Another name of budget constraint is budget restriction or budget limitations. The budget constraint occurs when a consumer is limited in consumption patterns by a certain income. The formula is expressed as: (P1×Q1) +(P2×Q2) = M

    UTILITY MAXIMIZATION
    Utility maximization refers to the concept that individuals and firms seek to get the highest satisfaction from their economic decisions. For example when deciding how to spend a fixed sum, individuals will purchase the combination of goods and services that gives the most satisfaction.

    COBWEB THEORY MEANING OF COBWEB THEORY
    The cobweb theory or cobweb model is an economic model that explains why prices might be subjected to periodic fluctuations in certain types of markets. It describes the cyclical supply and demand in a market where the amount produced must be chosen before prices are observed.
    IMPORTANCE OF COBWEB THEORY
    1. Explanations for endogeneity of price .
    2. Production cycles in commodity market.
    3. It also uses empirical testing in exploring the possibility “short run” supply and demand elasticities could produce in a temporary market instability.

    TYPES OF COBWEB THEORY
    ➢ CONTINUOUS COBWEB THEORY: it talks about how the fluctuations in price and output continue repeating about equilibrium at same level.

    ➢ DIVERGENT COBWEB THEORY: In this case the amplitude of the fluctuation increases with the passage of time. Once disturbed from the position of equilibrium the economy moves cumulatively away from it into the point of disequilibrium.

    ASSUMPTIONS OF COBWEB THEORY
    I. Price is completely a function of the preceding period’s supply.
    II. Perfect competition in which each producer assumes that present prices will continue and that his own production plan will not affect the market.
    III. The commodity concerned is perishable. The assumption shows that that the theory is particularly applicable to agricultural products.

    CRITICISMS OF COBWEB THEORY
    Like all other theories of trade cycle, the cobweb theory too suffers from some severe limitations like:
    ➢ It is not strictly a trade cycle theorem for it is concerned only with the farming sector.
    ➢ This theorem assume that the output is solely governed by price. This is an unrealistic assumption. The fact is that the output particularly of farm product is determined not only by price, but by serval other factors like weather, prices of the factors of production.
    ➢ It can also be argued that even the constant types of cobweb cycle would not continue indefinitely.

  106. Question 1
    The indifference curve in economics, shows the various combinations of two things (usually consumer goods) that yield equal satisfaction or utility to an individual. This concept was Developed by the Irish-born British economist Francis Y. Edgeworth, it is widely used as an analytical tool in the study of consumer behaviour, particularly as related to consumer demand. It is also utilized in welfare economics, a field that focuses on the effect of different actions on individual and general well-being.
    Assumptions of the indifference curve
    1. The consumer acts rational so as to maximize satisfaction.
    2. There are two goods X and Y.
    3. The consumer possess complete information of the price of good in the market.
    4. The price of the two goods are given.
    5. The consumer taste,habit ,income remains thesame throughout the analysis.
    6. He prefers more of X and less of Y and vice versa.
    7.An indifference curve is always convex to the origin.
    8. An indifference curve is negatively inclined, sloping downward.
    9. Goods are arranged in a scale of preference.
    10. The indifference curve is transitive in nature.
    The criticisms of an indifference curve
    1. Unrealistic assumptions:
    It is based on unrealistic assumptions of rationality, perfect competition, divisibility of goods and perfect knowledge of scale or preference.
    2. No novelty:
    Prof. D.H. Robertson remarked that the indifference curve technique is merely “An old wine in new bottle.”

    This technique is similar to the utility analysis because it merely gave new names to old terms. The concept of utility is replaced by scale of preference, tendency of diminishing marginal utility is replaced by diminishing marginal rate of substitution and cordinal numbers such as 1, 2, 3 etc., were labelled as ordinal numbers I, II, III, etc.

    The conditions of equilibrium in both analysis are similar. According to utility analysis the consumer is in equilibrium when:
    3. Indifference curve is non-transitive:
    Prof. W.E. Armstrong has argued that a consumer is indifferent between close alternative combinations only because he is not able to perceive the difference between the two.
    4. Fails to explain risky choice:
    Indifference curve analysis is criticized on the ground that it cannot explain consumer behaviour when he has to choose among alternatives involving risk or uncertainty of expectation.
    To make a choice among uncertain alternatives quantitative measurement of utility is needed to decide whether the risk is worth taking. In such situations cordinal system of utility can explain consumer bahaviour.
    5. Absurd and unrealistic combinations:
    Indifference curve analysis is based on hypothetical combinations. When we consider different combinations of two goods, then there may be some combinations that are meaningless and cannot be possible in real life.
    6. Docs not provide behaviouristic explanation of consumer behaviour:
    The indifference map is hypothetical in nature and is not based on observed market behaviour. It is subjective in nature instead of objective.
    The reason is that it does not set up functions and curves in purely objective terms. Purely objective indifference curves can be possible only if it is possible to obtain quantitative data.
    The logical structure of indifference curve theory is such that it is difficult to quantity indifference curves. Though attempts have been made to quantity indifference curve but success is very limited.
    7. Based on weak ordering:
    Indifference curve analysis is based on the weak ordering hypothesis i.e., a consumer can be indifferent between a large number of combinations.
    But, according to Prof. Samulson, it is not possible to find many situations of indifference in real world. The weak ordering makes it subjective in nature.

    Question 2
    Budject constraint
    The budget constraint is the set of all the bundles a consumer can afford given the consumer’s income. We assume that the consumer has a budget—an amount of money available to spend on bundles.
    So what a consumer can afford largely depends on the prices of the goods in question.
    Algebraically, budject constraint can be written as p1x1+p2x2 ≤ M.
    Where P represents the price of the goods and X representing the consumer bundle.

    Utility maximization
    This is also known as consumer equilibrium.
    Utility maximization is a point where a consumer derives maximum satisfaction when his marginal utility is equals to zero.
    Thus; MUx= Price x=0.
    More so, utility maximization is the attainment of the greatest possible total utility. As consumers tries to attain maximum satisfaction, they are constrained by the available income and prices of the goods .

    Question 3
    Cobwebs theory
    Cobweb theory is the idea that price fluctuations can lead to fluctuations in supply which cause a cycle of rising and falling prices.

    In a simple cobweb model, we assume there is an agricultural market where supply can vary due to variable factors, such as the weather.
    Assumptions of Cobweb theory
    1. In an agricultural market, farmers have to decide how much to produce a year in advance – before they know what the market price will be. (supply is price inelastic in short-term)
    2. A key determinant of supply will be the price from the previous year.
    3. A low price will mean some farmers go out of business. Also, a low price will discourage farmers from growing that crop in the next year.
    4. Demand for agricultural goods is usually price inelastic (a fall in price only causes a smaller % increase in demand).

    Limitations of Cobweb theory
    1. Rational expectations. The model assumes farmers base next years supply purely on the previous price and assume that next year’s price will be the same as last year (adaptive expectations). However, that rarely applies in the real world. Farmers are more likely to see it as a ‘good’ year or ‘bad year and learn from price volatility.
    2. Price divergence is unrealistic and not empirically seen. The idea that farmers only base supply on last year’s price means, in theory, prices could increasingly diverge, but farmers would learn from this and pre-empt changes in price.
    It may not be easy or desirable to switch supply. A potato grower may concentrate on potatoes because that is his speciality. It is not easy to give up potatoes and take to aubergines.
    3. Other factors affecting price. There are many other factors affecting price than a farmers decision to supply. In global markets, supply fluctuations will be minimized by the role of importing from abroad. Also, demand may vary. Also, supply can vary due to weather factors.
    4. Buffer stock schemes. Governments or producers could band together to limit price volatility by buying surplus.

    Cobweb theory and price divergence
    Price will diverge from the equilibrium when the supply curve is more elastic than the demand curve, (at the equilibrium point).
    If the slope of the supply curve is less than the demand curve, then the price changes could become magnified and the market more unstable.

    Cobweb theory and price convergence
    At the equilibrium point, if the demand curve is more elastic than the supply curve, we get the price volatility falling, and the price will converge on the equilibrium.

  107. Avatar Ugwu Miriam Ebere BUSINESS EDUCATION says:

    1. An indifference curve shows a combination of two goods, say x and y I. Various quantities that provides equal satisfaction.( Utility ) to an individual. It is also a graphical representation of a combined products that gives similar kind of satisfaction to a consumer thereby making them indifferent. It is used to describe a point where individuals have no particular preference for either relative qualities.
    Every point on the indifference curve shows that an individual or a consumer is indifferent between the two products as it gives him the same kind of utility.
    Indifference curve analysis work on a simple graph having two – dimensional. Each individual axis indicates a single type of economic goods.
    For instance, a child might be indifferent while having a toy, two comic book, and four toy trucks and a single comic book.
    The indifference map refers to a set of indifferent curves that reflects an understanding and gives an entire view of a consumer’s choices.
    Features of an indifference curve …
    a. The indifference curve always slopes downwards from left to right.
    b. Indifference curve is convex to the origin.
    c. Higher indifference curve represent high level of satisfaction.
    The assumption of the indifference curve includes..
    1. The consumer is rational to maximize the satisfaction and makes a transitive or consistent choice.
    2. The consumer is expected to buy any of the two commodities in a combination.
    3. Assumes marginal rate of substitution.
    4. The utility is expressed in terms of ordinal number.
    5. The consumer possesses complete information about the prices of goods in the market.
    6. Prices of two goods are given .
    7. An indifference curve is always convex to the origin.
    8. He prefers more of x to Less of Y or more of Y to less of X .
    9. An indifference curve is smooth and which means that the two goods are highly divisive and that levels of satisfaction also change in a continuous manner.
    CRITICISM OF INDIFFERENCE CURVE.
    1. It has been criticized for being an old wine in a new bottle for it has merely rehashed the concept of diminishing marginal utility of a product in new terms.
    2. Away from reality: with regard to the assertion that the indifference curve technique is super to the cardinal utility analysis because it is based on fewer assumptions.
    3. Cardinal measurement implicit in IC technique: prof. Robertson further points out that the cardinal utility is implicit in the indifference hypothesis when we analyse substitute.
    4. Mid way house: indifference curve are hypothetical because they are not subject to direct measurements.
    5. Fails to explain the observed behavior of the consumer: knight argues that the observed marked behavior of the consumer cannot be explained objectively.
    6. Indifference curves are non transitive: one of the greatest critics of an indifference hypothesis is W.E Armstrong who argues that a consumer is indifferent because he has complete knowledge of the various combination.
    7. The consumer is not rational: the indifference analysis like the utility theory assumes that the consumer acts rationally.
    8. Combinations are based on any principle: since the combination are made irrespective of the nature of the goods, they often become absurd.
    9. Limited analysis of consumers behavior: the assumption that the consumer buys more unit is of the same good when it’s price falls is unwarranted.
    10. Failure to consider some other factors of consumer behavior: it does not consider speculative demand , interdependence of the preferences of consumers in the form of Snob Veblen and Bandwagon effects. The effects of advertising of stocks etc.
    11. Based on unrealistic assumption of perfect competition: the indifferent curve technique is based on the unrealistic assumptions of perfect competition and homogeneity of goods whereas, in reality, the consumer is confronted with differenciated products and monopolistic competition.
    12. All commodities are not divisible: the indifference curve analysis becomes ridiculous when it is assumed that goods are divisible in small units.

    2… BUDGET CONSTRAINT
    Budget constraint is the total amount of items an individual can afford within a current budget. It is an economic term refering to the combined amount of items you can afford within amount of income available to you.
    For instance if you are a sales person with a 1000N budget for promotional items, this sets the upper limit on items you can purchase. The same principle of budget constraint can also be applied to time. If you are a manager, your employees only have a certain number of hours in a workday, which means you need to determine how much of their time they should spend on the various things they need to accomplish.
    __UTILITY MAXIMIZATION:
    This is a strategic scheme whereby individuals and companies seek to achieve the highest level of satisfaction from their economic decisions. For instance when a company’s resources are limited, management will implement a plan of purchasing goods or services that provides the maximum benefit.
    _ the concept of utility maximization was developed by the utilitarian philosophers Jeremy Bentham and John Stuart mill. It was incorporated into economics by English economist Alfred marshall. Utility maximization is the concept that individual and organisations seek to attain the highest level of satisfaction from economic decisions.
    The combination of goods or services that maximize utility is determined by comparing the marginal utility of two choices and finding the alternative with the highest total utility within the budget limit.

    3..COBWEB THEORY:
    Cobweb theory also know as cobweb model is an economic model that explains why prices might be subject to periodic fluctuations in a certain types of market. It describes cyclical supply and demand in the market where the amount produced must be chosen before price are observed.
    The cobweb model is generally based on a time lag between supply and demand decisions. Agricultural market are a context where the cobweb model might apply since there is a lag between planting and harvesting.
    For instance:
    A result of an expectedly bad weather, farmers go to market with an unusually small crop of strawberries. This shortage, equivalent to a leftward shift in market’s supply curve, results in high prices.
    If farmers expect these high price conditions to continue then on the following year, they will raise their production of strawberries relative to other crops.

  108. Avatar ASOGWA ARINZE GODWIN says:

    Asogwa Arinze Godwin
    2016/235173
    Godwintej@gmail.com
    ECO 201

    1• An indifference curve is a curve that represents all the combinations of goods that give the same satisfaction to the consumer. Since all the combinations give the same amount of satisfaction, the consumer prefers them equally. Hence the name indifference curve.

    Assumptions of Indifference Curve
    •The consumer is rational. Also, he possesses full information about all the relevant aspects of the economic environment in which he lives.
    •The consumer can rank combination of goods based on the satisfaction they yield. However, he can’t quantitatively express how much he prefers a certain good over the other.
    •If a consumer prefers A over B and B over C, then he prefers A over C.
    •If a combination X has more commodities than the combination Y, then X is preferred over Y.

    Criticisms of Indifference Curve
    • Consumer preferences can change substantially over time, making accurate indifference curves obsolete.
    •Fails to explain risky choice.
    •Based on weak ordering.
    •Consumer is not rational.
    •Based on two goods.

    (2)Budget Constraint
    The budget constraint is the set of all the bundles a consumer can afford given that consumer’s income. We assume that the consumer has a budget—an amount of money available to spend on bundles. For now, we do not worry about where this money or income comes from; we just assume a consumer has a budget.
    Budget constraints can change due to changes in prices and income, but let’s now consider other common features of the real-world market that can affect the budget constraint. We start with coupons or other methods firms use to give discounts to consumers.

    Utility Maximisation
    Utility maximisation refers to the concept that individuals and firms seek to get the highest satisfaction from their economic decisions.
    For example, when deciding how to spend a fixed some, individuals will purchase the combination of goods/services that give the most satisfaction.
    Utility maximisation can also refer to other decisions – for example, the optimal number of hours for labour to supply their labour. Working more increases income, but reduces leisure time.
    It is thus expressed as MUx = Px

    (3)COBWEB THEORY
    The Cobweb Theorem attempts to explain the regularly recurring cycles in the output and prices of farm products. Frankly speaking, it is not a business cycle theory for it relates only to the farming sector of the economy. In 1930 Cobweb Theory was advanced by the three economists in Italy.
    Netherlands and the United States, apparently independently of each other almost at the same time. The names of Henery Schultz. (U.S.A.), Jam Tinbergen (Netherland) and Althus Hanau (Italy) are associated with’ the theory, although the term Cobweb Theory was first suggested by Professor Nicholas Kaldor 1934.

    This theorem is based on three assumptions:
    (i) Perfect competition in which each producer assumes that present prices will continue and that his own production plans will not affect the market,
    (ii) Price is completely a function of the preceding period’s supply
    (iii) The commodity concerned is perishable. These assumptions show that the theory is particularly applicable to agricultural products.

    DIVISIONS OF COBWEB
    1) Continuous Cobwebs,

    (2) Divergent Cobwebs, and

    (3) Convergent Cobwebs.

    In the case of continuous Cobweb the fluctuations in price and output continues repeating about equilibrium at same level. In the case of diverging Cobweb the amplitude of the fluctuation increases with the passage of time. Once disturbed from position of equilibrium the economy moves cumulatively away from it into the doledrums of disequilibrium.
    This happens when the slope of the supply curve is less steep than the slops of demand curve. In the case of converging cobweb the economy, if and when disturbed from its equilibrium position, has a tendency to regain it through a series of oscillations. Each fluctuation is more damped than the one preceding it. This narrowing down of the amplitude of the fluctuations occurs when the slope of the supply curve is steeper than the slope of demand curve.

    Criticism of Cobweb Theory:
    Like all other theories of trade cycle, the Cobweb Theory too suffers from some severe limitations:
    (1) This is not strictly a trade cycle theorem for it is concerned only with the farming sector. There are a good many others sphere of production where it says nothing.
    (2) This theorem assumes that the output is solely governed by price. Thus is unrealistic assumption. The fact is that the output particularly of farm products is determined not only by price, but by several other factors—weather, prices of the factors of production.
    (3)It is applicable only where:
    (a) The price is governed by the supply available,
    (b) When production is governed only by the considerations of price as wider perfect competition, and
    (c) When production cannot vary before the expiry of one full period.

  109. Avatar Nwankwo Jasper Uchechukwu says:

    Eco 201 Online Quiz and Discussion (Budget constraint and others)
    1) Briefly discuss the indifference curve(including its assumptions and criticisms)
    2) Write short note on Budget constraint and utility maximization
    3) Extensively discuss the Cobweb theory.
    Meaning of Indifference Curve:
    The indifference curve analysis measures utility ordinally. It explains consumer behaviour in terms of his preferences or rankings for different combinations of two goods, say X and Y. An indifferent curve is drawn from the indifference schedule of the consumer. The latter shows the various combinations of the two commodities such that the consumer is indifferent to those combinations.

    According to Watson, “An indifference schedule is a list of combinations of two commodities the list being so arranged that a consumer is indifferent to the combinations, preferring none of any other.
    Assumption of Indifference Curve Analysis
    1.Rationality
    2.Utility is ordinal
    3.The diminishing marginal rate of substitution
    4.Total utility of the consumer depends on the amount of the commodities consumed
    5.Consistency and transitivity of choice
    6.The goods consumed by the consumer are divisible and are substitutable to each other
    7.An individual’s preferences are such that he prefers more to less.
    What is the criticism of indifference curve?
    Indifference curve is said to make unrealistic assumptions about human behaviour. It is unable to explain risky choices undertaken by the consumer. It has been criticized for being an ‘old wine in a new bottle’ for it has merely rehashed the concept of diminishing marginal utility of a product in new terms.
    What is a Budget Constraint
    A budget constraint occurs when a consumer is limited in consumption patterns by a certain income.

    When looking at the demand schedule we often consider effective demand. Effective demand is what people are actually able to spend given their limitations of income.Temporary budget constraints can be overcome by borrowing, but in the long term budget constraints are determined by income such as rent and wages.
    What’s Utility Maximization?
    Utility maximization is a strategic scheme whereby individuals and companies seek to achieve the highest level of satisfaction from their economic decisions. For example, when a company’s resources are limited, management will implement a plan of purchasing goods or services that provides the maximum benefit.
    The Cobweb Theory
    Cobweb theory is the idea that price fluctuations can lead to fluctuations in supply which cause a cycle of rising and falling prices. In a simple cobweb model, we assume there is an agricultural market where supply can vary due to variable factors, such as the weather.
    Assumptions of Cobweb theory
    1.In an agricultural market, farmers have to decide how much to produce a year in advance – before they know what the market price will be. (supply is price inelastic in short-term)
    2.A key determinant of supply will be the price from the previous year.
    3.A low price will mean some farmers go out of business. Also, a low price will discourage farmers from growing that crop in the next year.
    4.Demand for agricultural goods is usually price inelastic (a fall in price only causes a smaller % increase in demand)
    Limitations of Cobweb theory
    1.Rational expectations. The model assumes farmers base next years supply purely on the previous price and assume that next year’s price will be the same as last year (adaptive expectations). However, that rarely applies in the real world. Farmers are more likely to see it as a ‘good’ year or ‘bad year and learn from price volatility.
    2.Price divergence is unrealistic and not empirically seen. The idea that farmers only base supply on last year’s price means, in theory, prices could increasingly diverge, but farmers would learn from this and pre-empt changes in price.
    3.It may not be easy or desirable to switch supply. A potato grower may concentrate on potatoes because that is his speciality. It is not easy to give up potatoes and take to aubergines.
    Other factors affecting price. There are many other factors affecting price than a farmers decision to supply. In global markets, supply fluctuations will be minimized by the role of importing from abroad. Also, demand may vary. Also, supply can vary due to weather factors.
    4.Buffer stock schemes. Governments or producers could band together to limit price volatility by buying surplus.
    Name: Nwankwo Jasper Uchechukwu
    Reg No: 2020/242980
    Dept: Combined Social Science (Economics/Political Science)

  110. Avatar AMAEFULE RAPHEAL IZUCHUKWU says:

    AMAEFULE RAPHEAL IZUCHUKWU
    2020/246139
    amaefulerapheal2002@gmail.com
    ECO 201

    (1) INDIFFERENCE CURVE
    An indifference curve is the one which shows the possible combination of two commodities, each yielding the same satisfaction or utility to the consumer. All the combinations of two commodities represented on the indifference curve give the consumer the same amount of utility, such that he is “indifferent” as to which particular set of combination he prefers. Combination X will not give him more or less satisfaction than combination Y, as long as both combinations X and Y are on the same indifference curve. In other words, it does not matter to the consumer which combination he gets. If he gets combination X instead of Y, he will not feel any better off.

    ASSUMPTIONS OF INDIFFERENCE CURVE
    • The indifference curve cannot intersect, i.e, the curves can never cross each other since two indifference curves represent two different levels of satisfaction, which can never be equal.
    • An indifference curve is always convex to the origin.
    • An indifference curve is negatively inclined thus sloping downwards.
    • The consumer acts rationally in order to maximise satisfaction.
    • There are two goods, X and Y.
    • The prices of the two goods are given.
    • The consumer has knowledge of the prices of goods in the market.
    • The consumer taste, habit and income remains constant throughout.

    CRITICISMS OF INDIFFERENCE CURVE
    • Indifference curve is non-transitive: Prof. W.E. Armstrong has argued that a consumer is indifferent between close alternative combinations only because he is not able to perceive the difference between the two. But as the difference of combinations increases, the difference in the satisfaction of different combinations becomes evident and so the different combinations on the same indifference curve do not yield equal satisfaction.
    Thus, if Armstrong argument is accepted different points on an indifference curve give different satisfaction. The indifference curve will become non-transitive.
    • Fails to explain risky choice: Indifference curve analysis is criticized on the ground that it cannot explain consumer behaviour when he has to choose among alternatives involving risk or uncertainty of expectation.To make a choice among uncertain alternatives quantitative measurement of utility is needed to decide whether the risk is worth taking. In such situations cordinal system of utility can explain consumer bahaviour.
    • Absurd and unrealistic combinations:
    Indifference curve analysis is based on hypothetical combinations. When we consider different combinations of two goods, then there may be some combinations that are meaningless and cannot be possible in real life.
    • Does not provide behaviouristic explanation of consumer behaviour: The indifference map is hypothetical in nature and is not based on observed market behaviour. It is subjective in nature instead of objective. The reason is that it does not set up functions and curves in purely objective terms. Purely objective indifference curves can be possible only if it is possible to obtain quantitative data. The logical structure of indifference curve theory is such that it is difficult to quantity indifference curves. Though attempts have been made to quantity indifference curve but success is very limited.
    • Based on weak ordering: Indifference curve analysis is based on the weak ordering hypothesis i.e., a consumer can be indifferent between a large number of combinations.
    But, according to Prof. Samuelson, it is not possible to find many situations of indifference in real world. The weak ordering makes it subjective in nature. But ordinal analysis is certainly better than coordinal analysis as it is based on fewer assumptions.
    • The Consumer is not Rational: The indifference analysis, like the utility theory, assumes that the consumer acts rationally. He is of a calculating mind who carries innumerable combinations of different commodities in his head, can substitute one for the other, compare their total utilities and make a rational choice between various combinations of goods. This is too much to expect of the consumer who has to act under various social, economic and legal constraints.
    • Two-Goods Model Unrealistic: Again, the two-goods model on which the indifference analysis is based makes the theory unrealistic because a consumer buys not two but a large number of commodities to satisfy his innumerable wants. But the difficulty is that in the case of more than three goods geometry fails and economists will have to depend upon complicated mathematical solutions for analysing the problem of consumer behaviour.
    • Based on Unrealistic Assumption of Perfect Competition: The indifference curve technique is based on the unrealistic assumptions of perfect competition and homogeneity of goods whereas, in reality, the consumer is confronted with differentiated products and monopolistic competition. Since the indifference hypothesis is based on unwarranted assumptions, it becomes unrealistic.
    • All Commodities are not Divisible: The indifference curve analysis becomes ridiculous when it is assumed that goods are divisible in small units. Commodities like watches, cars, radios, etc. are indivisible. To have 3½ watches or 2½ cars or 1½ radios in any combination is unrealistic. When indivisible goods are taken in a combination, they cannot be substituted without dividing them. Thus the consumer cannot get maximum satisfaction from the use of indivisible goods.
    Despite these criticisms, the indifference curve technique is still regarded superior to the Marshallian introspective cardinalism.

    (2) BUDGET CONSTRAINT
    The budget constraint is the boundary of the opportunity set—all possible combinations of consumption that someone can afford given the prices of goods and the individual’s income. Budget constraint constitutes the primary part of the concept of utility maximization.
    The slope of the budget constraint is determined by the relative price of the choices. Choices beyond the budget constraint are not affordable.
    A budget constraint is linear with a slope equal to the negative ratio of the prices of the two goods in combination.

    UNDERSTANDING BUDGET CONSTRAINTS
    One way for us to better understand budget constraints is to build an equation. Let’s make P and Q the price and quantity of items purchased and budget the amount of income one has to spend.
    Budget = P1 × Q2 + P2 × Q2

    Recall that MRS is the slope of the indifference curve, and Px/Py is the slope of the budget line. This means that if the slope of the indifference curve is steeper than that of the budget line, the consumer will consume more X and less Y.
    The concept of budget constraint doesn’t account for sunk costs. Sunk costs are costs already received in the past that can’t be changed in the present. When you’re working with the budget constraint framework, you’re not expected to consider sunk costs as part of the present economic decision. For instance, if you spend money on a ski trip, and then realize that you hate skiing once you’ve already paid for it, the cost of the trip is now a sunk cost. You might finish the ski trip (e.g., spend the three more days left) to feel like you haven’t wasted your money. But here’s the problem: now you’re paying an opportunity cost by spending those three days doing something you hate instead of something you enjoy.

    UTILITY MAXIMISATION
    A consumer would want to achieve the greatest amount of satisfaction from the limited resources available to him. He can maximise total utility by reducing his expenditure on certain commodities whose increased consumption yields low satisfaction and increase expenditure on others which give him higher level of satisfaction. Thus, Utility maximisation requires that the ratio of marginal utilities of the last units of the commodities should be equal to the ratio of the prices. At this point, marginal utility is equal to zero.

    Thus, MUx = Price x =0

    Alternatively, a consumer’s utility is maximised when the marginal utility per amount spent on a product is equal to the marginal utility per amount spent on any other product.

    (3) COBWEB THEORY
    Cobweb theory is the idea that price fluctuations can lead to fluctuations in supply which cause a cycle of rising and falling prices.
    In a simple cobweb model, we assume there is an agricultural market where supply can vary due to variable factors, such as the weather. It describes cyclical supply and demand in a market where the amount produced must be chosen before prices are observed. Producers’ expectations about prices are assumed to be based on observations of previous prices. Nicholas Kaldor analyzed the model in 1934, coining the term “cobweb theorem” (see Kaldor, 1938 and Pashigian, 2008), citing previous analyses in German by Henry Schultz and Umberto Ricci.

    ASSUMPTIONS Of COBWEB Theory
    • In an agricultural market, farmers have to decide how much to produce a year in advance – before they know what the market price will be. (supply is price inelastic in short-term)
    • A key determinant of supply will be the price from the previous year.
    • A low price will mean some farmers go out of business. Also, a low price will discourage farmers from growing that crop in the next year.
    • Demand for agricultural goods is usually price inelastic (a fall in price only causes a smaller % increase in demand).

    COBWEB THEORY AND PRICE DIVERGENCE
    Price will diverge from the equilibrium when the supply curve is more elastic than the demand curve, (at the equilibrium point).
    If the slope of the supply curve is less than the demand curve, then the price changes could become magnified and the market more unstable.

    COBWEB THEORY AND PRICE CONVERGENCE
    At the equilibrium point, if the demand curve is more elastic than the supply curve, we get the price volatility falling, and the price will converge on the equilibrium.

    EXAMPLE OF COBWEB THEORY
    Housing: Housing is very inelastic and subject to booms and bust. In response to the housing boom in Ireland, supply increased. But, the price collapsed, leading to a big fall in the building of new housing. Tamari, (1981) argued there was evidence of cobweb nature of the Israeli housing market.

    LIMITATIONS OF COBWEB THEORY
    • Rational expectations: The model assumes farmers base next years supply purely on the previous price and assume that next year’s price will be the same as last year (adaptive expectations). However, that rarely applies in the real world. Farmers are more likely to see it as a ‘good’ year or ‘bad year and learn from price volatility.
    • Price divergence is unrealistic and not empirically seen: The idea that farmers only base supply on last year’s price means, in theory, prices could increasingly diverge, but farmers would learn from this and pre-empt changes in price.
    • It may not be easy or desirable to switch supply: A potato grower may concentrate on potatoes because that is his speciality. It is not easy to give up potatoes and take to aubergines.
    • Factors affecting price: There are many other factors affecting price than a farmers decision to supply. In global markets, supply fluctuations will be minimized by the role of importing from abroad. Also, demand may vary. Also, supply can vary due to weather factors.
    • Buffer stock schemes: Governments or producers could band together to limit price volatility by buying surplus.

  111. Avatar Ani Emmanuella Ngozi says:

    Reg no:2020/249748
    Department:Business Education
    Course :eco 201
    1a) Indifference curve is the curve that represents all the combinations of goods that provides an equal level of utility or satisfaction.
    b)ASSUMPTIONS OF INDIFFERENCE CURVE
    -) The price of the two goods is given
    -) An indifference curve is negative inclined sloping downward
    -)The consumer taste habit and income remains the same throughout the analysis
    -)The consumer acts rationally so as to maximize satisfaction
    -)An indifference curve is always convex to the origin
    C) CRITICISMS OF INDIFFERENCE CURVE
    -) it is based on unrealistic assumption of rationality perfect, competition, division of goods or preference
    -)indifference curve is criticized on the ground that it cannot explain consumer behavior
    -)indifference curve is non transitive
    -) indifference curve considers different combination of two goods, there may be some combination that is meaningless and cannot be possible in real life
    2A)Budget constraint is an economic term referring to the combined amount of item you can afford within the amount of income available to you .
    2B)Utility maximization describes the effort of the consumer to obtain the greatest degree of utility or value from a purchases, while keeping the cost of the purchase as low as possible
    3) Cobweb theory is the idea that price fluctuations can lead to fluctuation in supply which cause a cycle of rising and falling price.
    * cobweb theory of business cycle was propounded in 1930 independently by professor H Schultz of America,J.Tinbergen of the Netherlands and U. Riaci of Italy.But it was Prof Nicholas kaldo in 1934 that assume there is an agricultural market where supply can vary due to variable factor such as weather, he named it cobweb because of the pattern of movement of price and output resembled a cobweb.
    IT’S ASSUMPTIONS
    -) A key determine of supply will be the price from the previous year.
    -) The parameters determining the supply function having constant value over a series of period
    -)Current demand (D1) for the commodity is a function of current price (P1)
    -) A low price will make some farmers to go out of business
    -)The commodity under consideration is perishable and can be stored only for one year
    CRITICISMS OF COBWEB THEORY
    -) output not determined by price: the theory assumes that the output is determined by the price only. In reality, agricultural output in particular is determined by several other factors also such as weather, seeds, technology.
    -)This is not strictly a trade cycle theorem it’s concerned only with the farming sector. It’s says nothing in other sphere of production.
    -)Not Realistic:it is not realistic to assume that the demand and supply conditions remains unchanged over the previous and current period so that the demand and supply curves do not change .
    -)Continuous cobweb impractical: critics point out that continuous cobweb is impractical because it cannot continue indefinitely. This is because producer incite more loss than profit from it.
    IMPLICATIONS OF COBWEB THEORY
    -)The cobweb model is an oversimplification of the real price determination process but it supplies new information to the market participants about market behavior.
    -) it’s significance lies in the demand, supply and price behavior of a agricultural commodities.
    -)Expectations about future conditions have an important influence on current price.
    TYPES OF COBWEB THEORIES
    Divergent cobweb model
    Continuous cobweb model
    Convergent cobweb model

  112. Avatar ONYENEKE +AMARACHI +PRISCA says:

    Budget constraint is the boundary of the opportunity set all possible combinations of consumption that someone can afford given the prices of goods and services and the individuals income.
    A budget constraint occurs when a consumer is limited in consumption patterns by a certain income.
    Utility maximization is the concept that individuals and organizations seek to attain the highest level of satisfaction from their economic decisions.
    It is an example of a consumer decides to purchase more of product A and less of product B because the combination guarantees more benefit.
    In economics, utility theory governs individual decision making.

  113. Avatar ONYENEKE +AMARACHI +PRISCA says:

    Cobweb theory is the subjective fluctuations of price in the market.
    Moore sets out the cobweb idea which mathematical formalization was given by Ricci, Schultz and Tinbergen.
    Cobweb theory has played an essential role in incorporating both features as explanations for endogenity of price and production cycles in commodity markets.

  114. Avatar ONUKA +CHIDINMA +LEKWA says:

    Cobweb theory is an economic model that explains why prices might be subject to periodic fluctuations in certain types of market.
    In a simple cobweb model,we assume there is an agricultural market where supply can vary due to variable factors.
    It concentrates attention on the important fact that the present events depend upon the past happenings.

  115. Avatar ONUKA +CHIDINMA +LEKWA says:

    Budget constraint is the total amount of items you can afford within a current budget. It illustrates the range of choices available within that budget.
    Budget constraint represents all the combinations of goods and services that a consumer may purchase given current prices within his or her given income.
    Utility maximization is an important concept theory that shows how consumers decide to allocate their income.
    Utility maximization is the concept that individuals and firms seek to get the highest satisfaction from their economic decisions

  116. Avatar ONYENEKE +AMARACHI +PRISCA says:

    The indifference curve analysis measures utility ordinally. It explains consumer behaviour in terms of his preferences or rankings for different combinations of two goods, say X and Y. An indifferent curve is drawn from the indifference schedule of the consumer. The latter shows the various combinations of the two commodities such that the consumer is indifferent to those combinations
    ASSUMPTIONS
    The consumer acts rationally so as to maximise satisfaction.
    There are two goods X and Y
    An indifference curve is smooth and continuous which means that the two goods are highly divisible and that level of satisfaction also change in a continuous manner.
    CRITICISMS
    Indifference curve analysis is criticized on the ground that it cannot explain consumer behaviour when he has to choose among alternatives involving risk or uncertainty of expectation.

  117. Avatar Onuka Chidinma Lekwa says:

    An indifference curve shows a combination of two goods in various quantities that provides equal satisfaction (utility) to an individual.
    An indifference curve is a graph showing combination of two goods that give the consumer equal satisfaction and utility. Each point on an indifference curve indicates that a consumer is indifferent between the two and all points give him the same utility.

    Indifference Curve Assumptions
    The consumer is rational to maximize the satisfaction and makes a transitive or consistent choice.
    The consumer’s tastes, habits and income remain the same throughout the analysis.
    An indifference curve is negatively inclined sloping downward.
    CRITICISMS
    Indifference curve is said to make unrealistic assumptions about human behaviour. It is unable to explain risky choices undertaken by the consumer.

  118. Avatar Ani Emmanuella Ngoz says:

    Name:Ani Emmanuella Ngozi
    Reg no:2020/249748
    Department:Business Education
    Course :eco 201
    1a) Indifference curve is the curve that represents all the combinations of goods that provides an equal level of utility or satisfaction.
    b)ASSUMPTIONS OF INDIFFERENCE CURVE
    -) The price of the two goods is given
    -) An indifference curve is negative inclined sloping downward
    -)The consumer taste habit and income remains the same throughout the analysis
    -)The consumer acts rationally so as to maximize satisfaction
    -)An indifference curve is always convex to the origin
    C) CRITICISMS OF INDIFFERENCE CURVE
    -) it is based on unrealistic assumption of rationality perfect, competition, division of goods or preference
    -)indifference curve is criticized on the ground that it cannot explain consumer behavior
    -)indifference curve is non transitive
    -) indifference curve considers different combination of two goods, there may be some combination that is meaningless and cannot be possible in real life
    2A)Budget constraint is an economic term referring to the combined amount of item you can afford within the amount of income available to you .
    2B)Utility maximization describes the effort of the consumer to obtain the greatest degree of utility or value from a purchases, while keeping the cost of the purchase as low as possible
    3) Cobweb theory is the idea that price fluctuations can lead to fluctuation in supply which cause a cycle of rising and falling price.
    * cobweb theory of business cycle was propounded in 1930 independently by professor H Schultz of America,J.Tinbergen of the Netherlands and U. Riaci of Italy.But it was Prof Nicholas kaldo in 1934 that assume there is an agricultural market where supply can vary due to variable factor such as weather, he named it cobweb because of the pattern of movement of price and output resembled a cobweb.
    IT’S ASSUMPTIONS
    -) A key determine of supply will be the price from the previous year.
    -) The parameters determining the supply function having constant value over a series of period
    -)Current demand (D1) for the commodity is a function of current price (P1)
    -) A low price will make some farmers to go out of business
    -)The commodity under consideration is perishable and can be stored only for one year
    CRITICISMS OF COBWEB THEORY
    -) output not determined by price: the theory assumes that the output is determined by the price only. In reality, agricultural output in particular is determined by several other factors also such as weather, seeds, technology.
    -)This is not strictly a trade cycle theorem it’s concerned only with the farming sector. It’s says nothing in other sphere of production.
    -)Not Realistic:it is not realistic to assume that the demand and supply conditions remains unchanged over the previous and current period so that the demand and supply curves do not change .
    -)Continuous cobweb impractical: critics point out that continuous cobweb is impractical because it cannot continue indefinitely. This is because producer incite more loss than profit from it.
    IMPLICATIONS OF COBWEB THEORY
    -)The cobweb model is an oversimplification of the real price determination process but it supplies new information to the market participants about market behavior.
    -) it’s significance lies in the demand, supply and price behavior of a agricultural commodities.
    -)Expectations about future conditions have an important influence on current price.
    TYPES OF COBWEB THEORIES
    Divergent cobweb model
    Continuous cobweb model
    Convergent cobweb model

  119. Avatar Ani Emmanuella Ngozi says:

    Name:Ani Emmanuella Ngozi
    Reg no:2020/249748
    Department:Business Education
    Course :eco 201
    1a) Indifference curve is the curve that represents all the combinations of goods that provides an equal level of utility or satisfaction.
    b)ASSUMPTIONS OF INDIFFERENCE CURVE
    -) The price of the two goods is given
    -) An indifference curve is negative inclined sloping downward
    -)The consumer taste habit and income remains the same throughout the analysis
    -)The consumer acts rationally so as to maximize satisfaction
    -)An indifference curve is always convex to the origin
    C) CRITICISMS OF INDIFFERENCE CURVE
    -) it is based on unrealistic assumption of rationality perfect, competition, division of goods or preference
    -)indifference curve is criticized on the ground that it cannot explain consumer behavior
    -)indifference curve is non transitive
    -) indifference curve considers different combination of two goods, there may be some combination that is meaningless and cannot be possible in real life
    2A)Budget constraint is an economic term referring to the combined amount of item you can afford within the amount of income available to you .
    2B)Utility maximization describes the effort of the consumer to obtain the greatest degree of utility or value from a purchases, while keeping the cost of the purchase as low as possible
    3) Cobweb theory is the idea that price fluctuations can lead to fluctuation in supply which cause a cycle of rising and falling price.
    * cobweb theory of business cycle was propounded in 1930 independently by professor H Schultz of America,J.Tinbergen of the Netherlands and U. Riaci of Italy.But it was Prof Nicholas kaldo in 1934 that assume there is an agricultural market where supply can vary due to variable factor such as weather, he named it cobweb because of the pattern of movement of price and output resembled a cobweb.
    IT’S ASSUMPTIONS
    -) A key determine of supply will be the price from the previous year.
    -) The parameters determining the supply function having constant value over a series of period
    -)Current demand (D1) for the commodity is a function of current price (P1)
    -) A low price will make some farmers to go out of business
    -)The commodity under consideration is perishable and can be stored only for one year
    CRITICISMS OF COBWEB THEORY
    -) output not determined by price: the theory assumes that the output is determined by the price only. In reality, agricultural output in particular is determined by several other factors also such as weather, seeds, technology.
    -)This is not strictly a trade cycle theorem it’s concerned only with the farming sector. It’s says nothing in other sphere of production.
    -)Not Realistic:it is not realistic to assume that the demand and supply conditions remains unchanged over the previous and current period so that the demand and supply curves do not change .
    -)Continuous cobweb impractical: critics point out that continuous cobweb is impractical because it cannot continue indefinitely. This is because producer incite more loss than profit from it.
    IMPLICATIONS OF COBWEB THEORY
    -)The cobweb model is an oversimplification of the real price determination process but it supplies new information to the market participants about market behavior.
    -) it’s significance lies in the demand, supply and price behavior of a agricultural commodities.
    -)Expectations about future conditions have an important influence on current price.
    TYPES OF COBWEB THEORIES
    Divergent cobweb model.
    Continuous cobweb model.
    Convergent cobweb model.

  120. Avatar Chukwuemeka Precious Messoma says:

    NAME:CHUKWUEMEKA PRECIOUS MESSOMA
    DEPARTMENT: ECONOMICS
    REG NO:2020/242580

    INDIFFERENCE CURVE:An indifference curve (IC) is a graphical representation of different combinations or consumption of two goods or commodities, providing equal levels of satisfaction and utility for the consumer. In other words, a consumer is considered indifferent between any two goods indicated by a point on the curve, provided these combinations give the same utility.
    ASSUMPTIONS OF INDIFFERENCE CURVE
    1)The consumer is rational to maximize the satisfaction and makes a transitive or consistent choice.
    2)The consumer is expected to buy any of the two commodities in a combination.
    3)Consumers can rank a combination of commodities based on their satisfaction levels. Usually, the combination with the higher satisfaction level is preferred.
    4)The consumer behavior remains constant in the analysis.
    5)The utility is expressed in terms of ordinal numbers.
    CRITICISMS OF THE INDIFFERENCE CURVE
    (1)Away from Reality:
    With regard to the assertion that the indifference curve technique is superior to the cardinal utility analysis because it is based on fewer assumptions, Prof. Robertson observes: “The fact that the indifference hypothesis, the more complicated of the two psychologically, happens to be more economical logically, affords no guarantee that it is nearer to the truth.”
    (2) Fails to Explain the Observed Behaviour of the Consumer:
    Knight argues that the observed market behaviour of the consumer cannot be explained objectively. It is a mistake not to base the analysis of consumer’s demand on the cardinal utility theory. For instance, the income and substitution effects cannot be distinguished on the basis of mere observation.
    (3) Indifference Curves are Non-transitive:
    One of the greatest critics of the indifference hypothesis is W.E. Armstrong who argues that the consumer is indifferent not because he has complete knowledge of the various combinations available to him but because of his inability to judge the difference between alternative combinations. He further opines that any two points on an indifference curve are the points of indifference not because they are of iso-utility but of zero-utility difference.
    (4) The Consumer is not Rational:
    The indifference analysis, like the utility theory, assumes that the consumer acts rationally. He is of a calculating mind who carries innumerable combinations of different commodities in his head, can substitute one for the other, compare their total utilities and make a rational choice between various combinations of goods. This is too much to expect of the consumer who has to act under various social, economic and legal constraints
    Budget Constraint
    A budget constraint is an economic term referring to the combined amount of items you can afford within the amount of income available to you.
    Example:If you have only #1000 to spend in a store to buy a coat, and you like two coats, one for #700 and one for #300 then you can only buy one. You have to choose between the two coats as the combined price of the two coats is greater than #1000.
    Utility Maximization
    Utility maximisation refers to the concept that individuals and firms seek to get the highest satisfaction from their economic decisions.

    For example, when deciding how to spend a fixed some, individuals will purchase the combination of goods/services that give the most satisfaction.It also refers to other decisions – for example, the optimal number of hours for labour to supply their labour. Working more increases income, but reduces leisure time.

    Cobweb Theory
    Cobweb theory is the idea that price fluctuations can lead to fluctuations in supply which cause a cycle of rising and falling prices.
    In a simple cobweb model, we assume there is an agricultural market where supply can vary due to variable factors, such as the weather.
    Assumptions of Cobweb theory
    1)In an agricultural market, farmers have to decide how much to produce a year in advance – before they know what the market price will be. (supply is price inelastic in short-term)
    2)A key determinant of supply will be the price from the previous year.
    A low price will mean some farmers go out of business. Also, a low price will discourage farmers from growing that crop in the next year.
    3)Demand for agricultural goods is usually price inelastic (a fall in price only causes a smaller % increase in demand)
    Limitations of Cobweb theory
    1)Rational expectations. The model assumes farmers base next years supply purely on the previous price and assume that next year’s price will be the same as last year (adaptive expectations). However, that rarely applies in the real world. Farmers are more likely to see it as a ‘good’ year or ‘bad year and learn from price volatility.

    2)Price divergence is unrealistic and not empirically seen. The idea that farmers only base supply on last year’s price means, in theory, prices could increasingly diverge, but farmers would learn from this and pre-empt changes in price.

    3)It may not be easy or desirable to switch supply. A potato grower may concentrate on potatoes because that is his speciality. It is not easy to give up potatoes and take to aubergines.

    4)Other factors affecting price. There are many other factors affecting price than a farmers decision to supply. In global markets, supply fluctuations will be minimized by the role of importing from abroad. Also, demand may vary. Also, supply can vary due to weather factors.

    5)Buffer stock schemes. Governments or producers could band together to limit price volatility by buying surplus

  121. Avatar Magbo Chidimma Joy says:

    NAME: MAGBO CHIDIMMA JOY
    REG NO: 2020/242674
    DEPARTMENT: SOCIAL SCIENCE EDUCATION ( EDUCATION AND ECONOMICS)
    EMAIL: joychidimma961@gmail.com
    COURSE CODE: ECO 201
    COURSE TITLE: MICRO ECONOMICS THEORY

    ASSIGNMENT
    1. Briefly discuss the indifference curve ( including it’s assumption and Criticism)
    What Is an Indifference Curve?
    An indifference curve is a chart showing various combinations of two goods or commodities that leave the consumer equally well off or equally satisfied—hence indifferent—when it comes to having any combination between the two items that is shown along the curve.
    For instance, if you like both hot dogs and hamburgers, you may be indifferent to buying either 20 meat pie and no hamburgers, 40 hamburgers and no meat pie or some combination of the two—for example, 15 meat pie and 20 hamburgers Either combination provides the same utility.
    Marginal Rate of Substitution (MRS)
    The slope of the indifference curve is known as the marginal rate of substitution (MRS). The MRS is the rate at which the consumer is willing to give up one good for another. For example, a consumer who values apples will be slower to give them up for oranges, and the slope will reflect this rate of substitution.

    Criticisms and Complications of the Indifference Curve
    a. Indifference curves, like many aspects of contemporary economics, have been criticized for oversimplifying or making unrealistic assumptions about human behavior.
    For example, consumer preferences might change between two different points in time, rendering specific indifference curves practically useless. Other critics note that it is theoretically possible to have concave indifference curves or even circular curves that are either convex or concave to the origin at various points.

    What is the formula for an indifference curve?
    The formula used in economics for constructing an indifference curve is:
    ????(????, ????)=????
    where:
    c stands for the utility level achieved on the curve and is constant.
    t and y are the quantities of two different goods, t and y.

    properties of indifference curves
    Indifference curves assume that individuals have stable and ordered preferences and seek to maximize their utility.
    properties of indifference curve
    a.The indifference curve is downward-sloping.
    b.The slope of the indifference curve is convex.
    c.Curves plotted higher and farther to the right correspond with higher levels of utility.
    d.Various indifference curves can never cross or overlap.

    2. Write short note on budget constraint and utility maximsation?
    Budget constraint represents all the combinations of goods and services that a consumer may purchase given current prices within his or her given income. Consumer theory uses the concepts of a budget constraint and a preference map as tools to examine the parameters of consumer choices . Both concepts have a ready graphical representation in the two-good case. The consumer can only purchase as much as their income will allow, hence they are constrained by their budget.
    The equation of a budget constraint is {\displaystyle P_{x}x+P_{y}y=m} P_{x}x+P_{y}y=m where P_x is the price of good X, and P_y is the price of good Y, and m = income.
    2b. Utility maximization is a strategic scheme whereby individuals and companies seek to achieve the highest level of satisfaction from their economic decisions. For example, when a company’s resources are limited, management will implement a plan of purchasing goods or services that provides the maximum benefit.

    3. Extensively discuss the cobweb theory
    The cobweb model or cobweb theory is an economic model that explains why prices might be subject to periodic fluctuations in certain types of markets. It describes cyclical supply and demand in a market where the amount produced must be chosen before prices are observed. Producers’ expectations about prices are assumed to be based on observations of previous prices. Nicholas Kaldor analyzed the model in 1934, coining the term “cobweb theorem.
    Cobweb theory is also the idea that price fluctuations can lead to fluctuations in supply which cause a cycle of rising and falling prices.
    In a simple cobweb model, we assume there is an agricultural market where supply can vary due to variable factors, such as the weather.
    Assumptions of Cobweb theory
    a.In an agricultural market, farmers have to decide how much to produce a year in advance – before they know what the market price will be. (supply is price inelastic in short-term)
    b.A key determinant of supply will be the price from the previous year.
    c. A low price will mean some farmers go out of business. Also, a low price will discourage farmers from growing that crop in the next year.
    d.Demand for agricultural goods is usually price inelastic (a fall in price only causes a smaller % increase in demand
    Limitations of Cobweb theory
    a. Rational expectations. The model assumes farmers base next years supply purely on the previous price and assume that next year’s price will be the same as last year (adaptive expectations). However, that rarely applies in the real world. Farmers are more likely to see it as a ‘good’ year or ‘bad year and learn from price volatility.

    b. Price divergence is unrealistic and not empirically seen. The idea that farmers only base supply on last year’s price means, in theory, prices could increasingly diverge, but farmers would learn from this and pre-empt changes in price.
    It may not be easy or desirable to switch supply. A potato grower may concentrate on potatoes because that is his speciality. It is not easy to give up potatoes and take to aubergines.
    c. Other factors affecting price. There are many other factors affecting price than a farmers decision to supply. In global markets, supply fluctuations will be minimized by the role of importing from abroad. Also, demand may vary. Also, supply can vary due to weather factors.
    d. Buffer stock schemes. Governments or producers could band together to limit price volatility by buying surplus

  122. Avatar Udensi Martha Chioma .......2020/248965 says:

    1) INDIFFERENCE CURVE

    An indifference curve is a curve showing combination of two goods that has the same level of satisfaction. Indifference curve has the concept of ordinal utility. An indifference curve is a graphical representation of a combined products that gives similar kind of satisfaction to a consumer thereby making them indifferent.Every point on the indifference curve shows that an individual or a consumer is indifferent between the two products as it gives him the same kind of utility.

    Indifference Curve Analysis
    The indifference curve analysis work on a simple graph having two-dimensions. Each individual axis indicates a single type of economic goods. If the graph is on the curve or line, then it means that the consumer has no preference for any goods, because all the good has the same level of satisfaction or utility to the consumer. For instance, a child might be indifferent while having a toy, two comic book, four toy trucks and a single comic book.

    PROPERTIES OF AN INDIFFERENCE CURVE
    1. An indifference curve has a negative slope, i.e. it slopes downward from left to right.
    Reason: If a consumer decides to have one more unit of a commodity
    (say apples), quantity of another good (say oranges) must fall so that the total satisfaction (utility) remains same.

    2. Indifference curve is strictly Convex to origin i.e. MRSxy is always diminishing
    Reason: Due to the law of diminishing marginal utility a consumer is always willing to sacrifice lesser units of a commodity for every additional unit of another good.

    3. Higher indifference curve represents higher levels of satisfaction when you combine two goods.

    4. The slope of an indifference curve is also known as marginal rate of substitution.

    5. Indifference curves can never touch or intersect.

    ASSUMPTIONS OF THE INDIFFERENCE CURVE

    1.The consumer’s indifference map for the two goods X and Y depends on his scale of preference.
    2.There is no change in the taste and habit of the consumer through out the analysis.
    3.The consumer is rational.
    4.The goods are homogeneous and divisible.

    CRITICISMS OF INDIFFERENCE CURVE.

    (1) The Consumer is not Rational:
    The indifference analysis, like the utility theory, assumes that the consumer acts rationally. He is of a calculating mind who carries innumerable combinations of different commodities in his head, can substitute one for the other, compare their total utilities and make a rational choice between various combinations of goods. This is too much to expect of the consumer who has to act under various social, economic and legal constraints.

    (2) Combinations are not based on any Principle:
    Since the combinations are made irrespective of the nature of goods, they often become absurd. How many of us buy 10 pairs of shoes and 8 pants, 6 radios and 5 watches or 4 scooters and 3 cars? Such combinations do not possess any significance for the consumer.

    (3) Limited Analysis of Consumer’s Behaviour:
    Further, the assumption that the consumer buys more units of the same good when its price falls is unwarranted. Leaving aside the case of inferior goods, he may not like to have more units of a good because he is under the influence of “conspicuous consumption” and wants to display or to have variety.

    (4) Two-Goods Model Unrealistic:
    Again, the two-goods model on which the indifference analysis is based makes the theory unrealistic because a consumer buys not two but a large number of commodities to satisfy his innumerable wants.

    (5) Fails to Explain Consumer’s Behaviour in Choices Involving Risk or Uncertainty:
    Another serious criticism levelled against the preference hypothesis is that it fails to explain consumer behaviour when the individual is faced with choices involving risk or uncertainty of expectations.

    (6) Based on Unrealistic Assumption of Perfect Competition:
    The indifference curve technique is based on the unrealistic assumptions of perfect competition and homogeneity of goods whereas, in reality, the consumer is confronted with differentiated products and monopolistic competition. Since the indifference hypothesis is based on unwarranted assumptions, it becomes unrealistic.

    (7) All Commodities are not divisible

    The indifference curve analysis becomes ridiculous when it is assumed that goods are divisible in small units. Commodities like watches, cars, radios, etc. are indivisible. To have 3½ watches or 2½ cars or 1½ radios in any combination is unrealistic.

    2) BUDGET CONSTRAINTS

    Budget constraints occur as a result of scarcity and trade-offs. Scarcity is the concept that all resources are limited, such as time and money. Because resources are scarce, people must make trade-offs to efficiently allocate their resources while prioritizing their most important needs and wants. For example, say a household budget is 2,000 per month. Because the money is limited, the resource is scarce. Because there is only 2000 per month to cover expenses like rent and food as well as other wants, the household must make trade-offs to cover their most important needs. Most would consider rent and food to be a higher priority than going to the movies, so the family might decide to not go to the movies to be able to afford their rent and food.

    A budget constraint refers to the maximum combined items one can afford with the income generated by the individual. Based on the money available each month, an individual must allocate their funds efficiently to purchase goods and services.

    To conceptualize this in a simple way, imagine having only two items that can be purchased with the budget: hot dogs and t-shirts. The budget can be spent entirely on hot dogs, entirely on t-shirts, or some combination of both. The quantity of either good that can be purchased is determined by the price of the good, as well as the quantity purchased, and the price of the other good.

    Budget Constraint Formula
    A budget constraint in the example with only two goods can be expressed as follows:
    (P1 x Q1) + (P2 x Q2) = M
    Where P1 is the price of the first good, P2 is the price of the second good, Q1 is the quantity of the first good, Q2 is the quantity of the second good, and M is the money available. This equation illustrates that the quantities of goods 1 and 2 to be purchased are determined by the price and the constraints imposed by the money available.

    If there are more goods to be purchased with the available money, the equation can be expanded to include as many goods and prices as needed.
    A budget constraint graph is helpful to visualize which combinations of goods are affordable and which ones are not.

    Utility maximization
    Utility maximization refers to the concept that individuals and firms seek to get the highest satisfaction from their economic decisions.
    For example, when deciding how to spend a fixed amount, individuals will purchase the combination of goods/services that give the most satisfaction.

    Utility maximization can also refer to other decisions – for example, the optimal number of hours for labour to supply their labour. Working more increases income, but reduces leisure time.

    Utility maximisation is an important concept in classical economics. Early economists such as Alfred Marshall incorporated utility maximisation into economic theory.
    An important assumption of classical economics is that the price consumers are willing to pay is a good approximation to the utility that they get from the good. If people are willing to pay 800 naira for a cup of ice cream, then this suggests the consumer must get a utility of at least 800 naira.

    How individuals achieve utility maximisation
    How much to consume?
    A consumer will consume a good up to the point where the marginal utility is greater than or equal to the price.
    If you feel a sandwich gives you more utility than the cost of buying then you will continue to buy.

    When choosing between different goods, the Equi-Marginal principle argues that consumers will maximize total utility from their incomes by consuming that combination of goods where:

    MUa = Pa
    —– —-
    MUb = Pb

    Another way of showing utility maximisation is through the use of indifference curves and budget lines

    Indifference curves show different combinations of goods which give the same utility.
    A budget line shows disposable income and the maximum potential goods that can be bought
    Indifference curves further to the right are more desirable as they have bigger combinations of goods.
    Utility will be maximized at the furthest indifference curve still affordable.

    Limitations of utility maximization

    Ordinal utility. Ordinal utility states consumers find it hard to give exact values of utility, but they can order by preference – e.g. I prefer apples to bananas. This theory of ordinal utility was developed by John Hicks and gives less precise but rough guides to utility of consumers.

    Irrational behaviour. Classical economics generally assumes individuals are rational and seek to maximise utility. However, in the real world, this may not be the case. Other factors affecting choice

    Impulsive behaviour – buying goods which are later regretted.

    3) COBWEB THEORY

    Cobweb theory is the idea that price fluctuations can lead to fluctuations in supply which cause a cycle of rising and falling prices.
    In a simple cobweb model, we assume there is an agricultural market where supply can vary due to variable factors, such as the weather.

    Assumptions of Cobweb theory
    In an agricultural market, farmers have to decide how much to produce a year in advance – before they know what the market price will be.

    A key determinant of supply will be the price from the previous year.

    A low price will mean some farmers go out of business. Also, a low price will discourage farmers from growing that crop in the next year.

    Demand for agricultural goods is usually price inelastic (a fall in price only causes a smaller % increase in demand)
    cobweb-theory

    If there is a very good harvest, then supply will be greater than expected and this will cause a fall in price.
    However, this fall in price may cause some farmers to go out of business. Next year farmers may be put off by the low price and produce something else. The consequence is that if we have one year of low prices, next year farmers reduce the supply.
    If supply is reduced, then this will cause the price to rise.
    If farmers see high prices (and high profits), then next year they are inclined to increase supply because that product is more profitable.
    In theory, the market could fluctuate between high price and low price as suppliers respond to past prices.

    Limitations of Cobweb theory

    Rational expectations. The model assumes farmers base next years supply purely on the previous price and assume that next year’s price will be the same as last year (adaptive expectations). However, that rarely applies in the real world. Farmers are more likely to see it as a ‘good’ year or ‘bad year and learn from price volatility.

  123. Avatar Egwuchukwu Maryann Chiamaka says:

    NAME: Egwuchukwu Maryann Chiamaka
    REG NO: 2020/245129
    DEPARTMENT: Economics
    E-MAIL: egwuchukwuchiamaka24@gmail.com

    1. BRIEFLY DISCUSS THE INDIFFERENCE CURVE ( INCLUDING ITS ASSUMPTIONS AND CRITICISMS)
    The indifferent curve is a graphical representation of various combinations of two goods or commodities that leave the consumer equally satisfied, thereby making them indifferent to the series of combinations.

    For instance, if a consumer likes both ice cream and cake, he/she may be indifferent to buying either 20 ice creams and no cake, 30 cakes and no ice cream or some combination of the two i.e 15 ice creams and 20 cakes. Either one of the combinations provide the same level of satisfaction.

    A set of indifference curves is known as an indifference map and the highest indifferent curve to the right of others represent a higher level of satisfaction and preferably combination of the two commodities.

    A standard indifference curve analysis operates using a simple two-dimensional chart. Each axis represents one type of economic good. Along the indifference curve, the consumer is indifferent between any of the combinations of goods represented by points on the curve because the combination of goods on an indifference curve provides the same level of utility to the consumer.

    The slope of an indifference curve is usually negative i.e it is downward sloping from the left to the right. This represents a consumer’s indifference to all the combinations on the indifference curves. He/she must sacrifice less of one good to obtain more of another. The indifference curve is characterized to be convex to the origin. This implies that the consumer substitutes X for Y so that the marginal rate of a substitution diminishes. This means that as the amount of X is increased by equal amounts, that of Y diminishes by smaller amounts.

    An indifference curve is used by economists to explain the trade-offs that people consider when they encounter two goods that they wish to buy. Because people are constrained by a limited budget, they cannot purchase everything. Instead, a cost- benefit analysis must be considered. Indifference curves visually depict this trade-off by showing which quantities of two goods provide the same utility to a consumer.

    The indifference curve analysis go by some assumptions and they include:

    1. The consumer is rational to maximize the satisfaction and makes a transitive or consistent choice.

    2. The consumer is expected to buy any of the two commodities in a combination.

    3. Consumers can rank a combination of commodities based on their satisfaction levels. Usually, the combination with the higher satisfaction level is preferred.

    4. The consumer behavior remains constant in the analysis.

    5. The utility is expressed in terms of ordinal numbers

    6. Assumes marginal rate of substitution to diminish

    7. The consumer prefers more of good X to less of good Y or more of good Y to less of good X.

    8. The prices of the two goods are given.

    9. The two goods are highly divisible

    10. The indifference curve is negatively inclined i.e it is downward sloping

    11. The indifference curve is always convex to the origin.

    Indifference curves, like many aspects of contemporary economics, have been criticized for oversimplifying or making unrealistic assumptions about human behavior.

    For example, consumer preferences might change between two different points in time, rendering specific indifference curves practically useless. Other critics note that it is theoretically possible to have concave indifference curves or even circular curves that are either convex or concave to the origin at various points.

    Other criticisms are:

    1. Assumptions of the analysis are unrealistic

    2. It does not take into account the risk of the choices

    3. It also has a weak ordering hypothesis

    2. WRITE SHORT NOTES ON BUDGET CONSTRAINT AND UTILITY MAXIMIZATION

    BUDGET CONSTRAINTS
    Budget constraints occur as a result of scarcity and trade-offs. Scarcity is the concept that all resources are limited, such as time and money. Because resources are scarce, people must make trade-offs to efficiently allocate their resources while prioritizing their most important needs and wants.

    For example, say a household budget is N50,000 per month. Because there is only N50,000 per month to cover expenses like rent and food as well as other wants, the household must make trade-offs to cover their most important needs. Most would consider rent and food to be a higher priority than going to the movies, so the family might decide to not go to the movies to be able to afford their rent and food.

    A budget constraint refers to the maximum combined items one can afford with the income generated by the individual. Based on the money available each month, an individual must allocate their funds efficiently to purchase goods and services.

    UTILITY MAXIMIZATION
    Utility maximization is a strategic scheme whereby individuals and companies seek to achieve the highest level of satisfaction from their economic decisions. Utility maximization is also called Consumer equilibrium. It is the attainment of the greatest possible total utility.

    The combination of goods or services that maximize utility is determined by comparing the marginal utility of two choices and finding the alternative with the highest total utility within the budget limit. The decision is influenced by the option that produces a higher level of satisfaction. This explains how companies and individuals develop consumption habits.

    The consumer may consider purchasing more of one item and less of another. Through maximizing utility, the consumer will buy an item that produces the greatest marginal utility with the least amount of spending.

    3. EXTENSIVELY DISCUSS THE COBWEB THEORY

    COBWEB THEORY
    The cobweb theory explains the fact that changes in the price lead to fluctuations in supply and further cause a cycle of rising and falling price.

    An example of cobweb theory could be the impact of boom in housing because of which supply of houses increase. It further leads to collapse in the prices and leads to a fall in construction of new houses.

    In a simple cobweb model, we assume there is an agricultural market where supply can vary due to variable factors such as weather. The following are some assumptions of the cobweb theory:

    1. In an agricultural market, farmers have to decide how much to produce a year in advance before they know what the market price will be (supply is price inelastic in short term)

    2. A key determinant of supply will be the price from the previous year

    3. A low price will mean some farmers go out of business. Also, a low price will discourage farmers from growing that crop in the next year.

    4. Demand for agricultural goods in usually price inelastic (a fall in price only causes a smaller percentage increase in demand)

    So, if there is a very good harvest, supply will be greater than expected and this will cause a fall in price. However, this fall in price may cause some farmers to go out of business. Next year, farmers may be put off by the low price and produce something else. The consequence is that if we have one year of low prices, next year farmers reduce the supply.

    If the supply is reduced, then this will cause the price to rise. If farmers see high prices and high profits, then next year they are inclined to increase supply because that product is more profitable.

    In theory, the market could fluctuate between high price and low price as suppliers respond to past prices.

    Limitations of Cobweb Theory

    The cobweb theory also has its fair share of limitations and they include:

    1. Price divergence is unrealistic and not empirically seen: The idea that farmers only base supply on last year’s price means, in theory that prices could increasingly diverge, but farmers would learn from this and pre-empt changes in price.

    2. It may not be easy or desirable to switch supply: A potato grower may concentrate on potatoes because that is his area of specialization. It is not easy to give up potatoes and take to plantains.

    3. Rational expectations: The model assumes farmers base next years supply purely on the previous price and assume that next year’s price will be the same as last year (adaptive expectations). However, that rarely applies in the real world. Farmers are more likely to see it as a ‘good’ year or ‘bad year and learn from price volatility.

    4. Other factors affecting price: There are many other factors affecting price than a farmers decision to supply. In global markets, supply fluctuations will be minimized by the role of importing from abroad. Also, demand may vary. Also, supply can vary due to weather factors.

  124. Avatar Emmanuel patience N says:

    Name: Emmanuel patience N
    Reg no: 2020/248472
    faculty: vocational and technical education
    Dpt: Business Education
    Email: preciousemmanuel530@gmail.com

    Answers
    1: indifference curve is as the locus point representing different combination of two goods which yields equal utility to thr consumer so that the consumer is indifferent to the combination consumed
    Assumptions
    1) more of commodity is better than less
    2) preference or indifference of a consumer are transitive
    3) Diminishing marginal rate of substitution

    criticism
    it has been criticized for being the old wine in a bottle for it has merely rehashed the concept of diminishing marginal utility of product in new terms

    2: budget constraint is the total amount of items one can afford within a current budget, it illustrate the range of choices available with the budget

    utility maximization is the concept that individual and organizations seek to attain the highest level of satisfaction from their economic decisions

    3: cobweb theory is the idea that price fluatuation can lead to fluatuation in supply which causes a cycle of rising and falling prices
    Assumptions
    it assumes there is an agricultural market where supply can vary due to variable factors such as weather.

  125. Avatar Murna Livinus says:

    NAME:murna Livinus
    REG NO:2020/250325
    EMAIL: murnalivinus@gmail.com

    INDIFFERENCE CURVE
    An indifference curve (IC) is a graphical representation of different combinations or consumption bundles of two goods or commodities, providing equal levels of satisfaction and utility for the consumer. In other words, a consumer is considered indifferent between any two bundles indicated by a point on the curve, provided these combinations give the same utility.
    The indifference curve in economics examines demand patterns for commodity combinations, budget constraints and helps understand customer preferences. The theory applies to welfare economics and microeconomics
    , such as consumer and producer equilibrium, measurement of consumer surplus
    , theory of exchange, e.t.c
    ASSUMPTIONS
    i.The consumer is rational to maximize the satisfaction and makes a transitive or consistent choice.

    ii.The consumer is expected to buy any of the two commodities in a combination
    iii. Consumers can rank a combination of commodities based on their satisfaction levels. Usually, the combination with the higher satisfaction level is preferred.

    iv.The consumer behavior remains constant in the analysis.
    v. The utility is expressed in terms of ordinal numbers.

    vi.Assumes marginal rate of substitution to diminish.
    CRITICISMS

    1.Cardinal Measurement implicit in l.C. Technique:
    Prof. Robertson further points out that the cardinal measurement of utility is implicit in the indifference hypothesis when we analyse substitutes and complements. It is assumed in their case that the consumer is capable of regarding a change in one situation to be preferable to another change in another situation. To explain it, Robertson takes three situations A, В and C, Suppose the consumer compares one change in situation AB with another change in situation BC.

    He prefers the change AB more highly than the change BC. If another point D is taken, then he prefers the change AD as highly as the change DC. This, according to Robertson, is equivalent to saying that the space AC is twice the space AD and we are back in the world of cardinal measurement of utility. Thus when changes in two situations are compared as in the case of substitutes and complements, it leads to the cardinal measurement of utility.

    2.MID-WAY HOUSE
    ndifference curves are hypothetical because they are not subject to direct measurements. Although consumer choices are grouped in combinations on the ordinal scale, no operational method has been devised so far to measure the exact shape of an indifference curve. This stems from the fact that ‘the peculiar logical structure of the theory has low empiric content.’ The failure of Hicks to present a scientific approach to the consumer’s behaviour led Schumpeter to characterize the indifference analysis as a ‘midway house;’. He remarked: “From a practical standpoint we are not much better off when drawing purely imaginary indifference curves than we are when speaking of purely imaginary utility functions.”

    3. Fails to Explain the Observed Behaviour of the Consumer:
    Knight argues that the observed market behaviour of the consumer cannot be explained objectively. It is a mistake not to base the analysis of consumer’s demand on the cardinal utility theory. For instance, the income and substitution effects cannot be distinguished on the basis of mere observation. In fact, what we observe is the composite price effect. Similarly, the theory of complementaries and substitutes based on the principle of marginal rate of substitution cannot be discovered from the market data. Samuelson has explained the observed behaviour of the consumer in his Revealed Preference Theory e.t.c

    BUDGET CONSTRAINTS
    A budget constraint is an economic term referring to the combined amount of items you can afford within the amount of income available to you. For example, if you are a sales professional with a $1,000 budget for promotional items, this sets the upper limit on items you can purchase. The cost of each item and the minimum quantity you need would determine how many you can buy within your budget.
    The same principle of budget constraint can also be applied to time. If you are a manager, your employees only have a certain number of hours in a workday, which means you need to determine how much of their time they should spend on the various things they need to accomplish. The calculation may vary from week to week as your business priorities change and your employees’ available time adjusts since some weeks include holidays or employees might take time off.

    The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed’s data and insights to deliver useful tips to help guide your career journey.

    Most businesses have limited funds to spend on goods and services. They must, therefore, be selective about how much they spend on each item within their budget constraints. To stay within that budget, they need to determine how much to spend on various items and related costs. In this article, we discuss what budget constraints are, explain how they work and explore opportunity costs and sunk costs.
    Budget constraint is the total amount of items you can afford within a current budget.
    Budget constraint illustrates the range of choices available within that budget.
    Opportunity cost is the amount or item you give up in exchange for something else.
    Sunk cost is the amount spent in the past and cannot be recovered.
    ;
    Get the latest trending stories, job search tips, career advice and more!
    What is a budget constraint?
    A budget constraint is an economic term referring to the combined amount of items you can afford within the amount of income available to you. For example, if you are a sales professional with a $1,000 budget for promotional items, this sets the upper limit on items you can purchase. The cost of each item and the minimum quantity you need would determine how many you can buy within your budget.
    The same principle of budget constraint can also be applied to time. If you are a manager, your employees only have a certain number of hours in a workday, which means you need to determine how much of their time they should spend on the various things they need to accomplish. The calculation may vary from week to week as your business priorities change and your employees’ available time adjusts since some weeks include holidays or employees might take time off.

    BUDGET CONSTRAINT EQUATION
    You can use the following equation to help calculate budget constraint:

    (P1 x Q1) + (P2 x Q2) = m

    In this equation, P1 is the cost of the first item, P2 is the cost of the second item and m is the amount of money available. Q1 and Q2 represent the quantity of each item you are purchasing. You could express this equation verbally by saying that the cost of the total number of X items added to the cost of the total number of Y items must equal the amount of money or income you have available.

    If you draw this equation on a graph where the x-axis represents quantities of one item and the y-axis represents quantities of the other, it should plot a straight diagonal line sloping down from the left side to the right side. This line is called the budget line. Any point along the budget line indicates the quantities of each item you could purchase within your budget. If the price of one or both items changes, you would need to adjust this line accordingly.

    UTILITY MAXIMIZATION
    Utility is an economic concept denoting consumers’ benefit or satisfaction from goods or services. According to economic theories on rational choice, consumers always seek to maximize their utility.

    It is important to understand what maximum utility is because it influences the price and demand of commodities and services. Utility is the extent to which an economic good or service satisfies the consumer’s needs. In other words, economic utility is the usefulness of the product or service. It is practically impossible to quantify a consumer’s utility or benefit in economics. Analysts indirectly estimate product or service utility using specific economic models

    Daniel Bernoulli, a Swiss mathematician, first introduced the concept of utility in the 18th century. Since then, economic theories have advanced, resulting in different types of utility. The two main types of economic utility are:

    COBWEB THEORY
    Cobweb theory is the idea that price fluctuations can lead to fluctuations in supply which cause a cycle of rising and falling prices.

    In a simple cobweb model, we assume there is an agricultural market where supply can vary due to variable factors, such as the weather.

    ASSUMPTIONS OF COBWEB THEORY
    Ini. an agricultural market, farmers have to decide how much to produce a year in advance – before they know what the market price will be. (supply is price inelastic in short-term)

    Ii. A key determinant of supply will be the price from the previous year.

    iii. A low price will mean some farmers go out of business. Also, a low price will discourage farmers from growing that crop in the next year.

    iv. Demand for agricultural goods is usually price inelastic (a fall in price only causes a smaller % increase in demand)

    6COBWEB THEORY AND PRICE DIVERGENCE
    Price will diverge from the equilibrium when the supply curve is more elastic than the demand curve, (at the equilibrium point)
    If the slope of the supply curve is less than the demand curve, then the price changes could become magnified and the market more unstable
    At the equilibrium point, if the demand curve is more elastic than the supply curve, we get the price volatility falling, and the price will converge on the equilibrium
    LIMITATIONS OF COBWEB THEORY
    Rational expectations. The model assumes farmers base next years supply purely on the previous price and assume that next year’s price will be the same as last year (adaptive expectations). However, that rarely applies in the real world. Farmers are more likely to see it as a ‘good’ year or ‘bad year and learn from price volatility.

    Ii. Price divergence is unrealistic and not empirically seen. The idea that farmers only base supply on last year’s price means, in theory, prices could increasingly diverge, but farmers would learn from this and pre-empt changes in price.

    iii. It may not be easy or desirable to switch supply. A potato grower may concentrate on potatoes because that is his speciality. It is not easy to give up potatoes and take to aubergines.e.t.c

  126. Avatar IROHA JANE KALU . Reg. No. 2020/246973 says:

    Eco 201 Online Quiz and Discussion (Budget constraint and others)—-6/3/2023
    1) Briefly discuss the indifference curve(including its assumptions and criticisms)
    2) Write short note on Budget constraint and utility maximization
    3) Extensively discuss the Cobweb theory.
    1. An indifference curve shows a combination of two goods in various quantities that provides equal satisfaction (utility) to an individual. It is used in economics to describe the point where individuals have no particular preference for either one good or another based on their relative quantities.
    In other words, two commodities are perfect substitutes for each other – In this case, the indifference curve is a straight line, where MRS is constant. Two goods are perfect complementary goods – An example of such goods would be gasoline and water in a car. In such cases, the IC will be L-shaped and convex to the origin.

    INDIFFERENCE CURVE ASSUMPTIONS
    The consumer is rational to maximize the satisfaction and makes a transitive or consistent choice.
    The consumer is expected to buy any of the two commodities in a combination.
    Consumers can rank a combination of commodities based on their satisfaction levels. Usually, the combination with the higher satisfaction level is preferred.
    The consumer behavior remains constant in the analysis.
    The utility is expressed in terms of ordinal numbers.
    Assumes marginal rate of substitution to diminish.

    Examples
    Jack has 1 unit of cloth and 8 units of the book. He decides to exchange 4 units of books for an additional piece of cloth. The following situations may occur:

    Jack is satisfied with 1 unit of cloth and 8 units of books.
    He is also satisfied with 2 units of cloth and 4 units of books.
    In conclusion, Jack has the same level of satisfaction and utility in both situations as a consumer. He can utilize the following combinations based on his choice:

    Combination Cloth Books

    A 1 8
    B 2 4
    C 3 2

    CRITICISMS OF INDIFFERENCE CURVE
    1. UNREALISTIC ASSUMPTIONS:
    It is based on unrealistic assumptions of rationality, perfect competition, divisibility of goods and perfect knowledge of scale or preference.

    The purchases of a consumer arc very much affected by habits, customs and fashion. Therefore, a consumer does not act always rationally. We cannot expect a consumer to know his indifference map. Goods Visible and perfect completion is a myth.

    2. NO NOVELTY:
    Prof. D.H. Robertson remarked that the indifference curve technique is merely “An old wine in new bottle.”

    This technique is similar to the utility analysis because it merely gave new names to old terms. The concept of utility is replaced by scale of preference, tendency of diminishing marginal utility is replaced by diminishing marginal rate of substitution and cordinal numbers such as 1, 2, 3 etc., were labelled as ordinal numbers I, II, III, etc.

    The conditions of equilibrium in both analysis are similar. According to utility analysis the consumer is in equilibrium when:

    MUX / MUy = Px/ Py

    ADVERTISEMENTS:
    According to QC, equilibrium is given by:

    MRSxy= Px/ Py

    Where MRS xy = MUX / MUy

    By substituting for MUx/ MUy MRSxy, we get

    ADVERTISEMENTS:

    MUx/ MUy = Px / Py

    Therefore, conditions of equilibrium are similar in both the techniques.

    But this criticism is untenable. Prof. Hicks claims, “The replacement of diminishing marginal rate of substitution is not mere translation.

    It is a positive change in the theory of consumer demand.” We need not measure utility in fact to know the marginal rate of substitution. The consumer is simply asked to tell how much of if he gives to take an additional unit of X.

    3. INDIFFERENCE CURVE IS NON-TRANSITIVE:
    Prof. W.E. Armstrong has argued that a consumer is indifferent between close alternative combinations only because he is not able to perceive the difference between the two.

    But as the difference of combinations increases, the difference in the satisfaction of different combinations becomes evident and so the different combinations on the same indifference curve do not yield equal satisfaction.
    Thus, if Armstrong argument is accepted different points on an indifference curve give different satisfaction. The indifference curve will become non-transitive.

    4. FAILS TO EXPLAIN RISKY CHOICE:
    Indifference curve analysis is criticized on the ground that it cannot explain consumer behaviour when he has to choose among alternatives involving risk or uncertainty of expectation.

    To make a choice among uncertain alternatives quantitative measurement of utility is needed to decide whether the risk is worth taking. In such situations cordinal system of utility can explain consumer bahaviour.

    5. ABSURD AND UNREALISTIC COMBINATIONS:
    Indifference curve analysis is based on hypothetical combinations. When we consider different combinations of two goods, then there may be some combinations that are meaningless and cannot be possible in real life.

    6. DOCS NOT PROVIDE BEHAVIOURISTIC EXPLANATION OF CONSUMER BEHAVIOUR:
    The indifference map is hypothetical in nature and is not based on observed market behaviour. It is subjective in nature instead of objective.

    The reason is that it does not set up functions and curves in purely objective terms. Purely objective indifference curves can be possible only if it is possible to obtain quantitative data.

    The logical structure of indifference curve theory is such that it is difficult to quantity indifference curves. Though attempts have been made to quantity indifference curve but success is very limited.

    7. BASED ON WEAK ORDERING:
    Indifference curve analysis is based on the weak ordering hypothesis i.e., a consumer can be indifferent between a large number of combinations.

    But, according to Prof. Samulson, it is not possible to find many situations of indifference in real world. The weak ordering makes it subjective in nature.
    But ordinal analysis is certainly better than coordinal analysis as it is based on fewer assumptions.
    2. WRITE SHORT NOTE ON BUDGET CONSTRAINT AND UTILITY MAXIMIZATION
     BUDGET CONSTRAINT
    A budget constraint is an economic term referring to the combined amount of items you can afford within the amount of income available to you. For example, if you are a sales professional with a $1,000 budget for promotional items, this sets the upper limit on items you can purchase. The cost of each item and the minimum quantity you need would determine how many you can buy within your budget.
    The same principle of budget constraint can also be applied to time. If you are a manager, your employees only have a certain number of hours in a workday, which means you need to determine how much of their time they should spend on the various things they need to accomplish. The calculation may vary from week to week as your business priorities change and your employees’ available time adjusts since some weeks include holidays or employees might take time off.
    FORMULA
    (P1 x Q1) + (P2 x Q2) = m
    In this equation, P1 is the cost of the first item, P2 is the cost of the second item and m is the amount of money available. Q1 and Q2 represent the quantity of each item you are purchasing. You could express this equation verbally by saying that the cost of the total number of X items added to the cost of the total number of Y items must equal the amount of money or income you have available.
    3. UTILITY MAXIMIZATION
    Utility maximization is a strategic scheme whereby individuals and companies seek to achieve the highest level of satisfaction from their economic decisions. For example, when a company’s resources are limited, management will implement a plan of purchasing goods or services that provides the maximum benefit.
    For example, if product ‘A’ comes with twice more marginal utility than product ‘B,’ that means product ‘A’ is providing more marginal utility per dollar than ‘B.’ As a result, the consumer may decide to buy more of product ‘A.’
    The utility-maximizing rule is expressed as follows:
    Utility Maximizing Rule
    MUA/PA = MUB/PB where: MU is marginal utility and P is price
    4. EXTENSIVELY DISCUSS THE COBWEB THEORY.
    Cobweb theory is the idea that price fluctuations can lead to fluctuations in supply which cause a cycle of rising and falling prices.
    In a simple cobweb model, we assume there is an agricultural market where supply can vary due to variable factors, such as the weather.
    The cobweb model or cobweb theory is an economic model that explains why prices might be subject to periodic fluctuations in certain types of markets. It describes cyclical supply and demand in a market where the amount produced must be chosen before prices are observed.
    ASSUMPTIONS OF COBWEB THEORY
    In an agricultural market, farmers have to decide how much to produce a year in advance – before they know what the market price will be. (supply is price inelastic in short-term)
    A key determinant of supply will be the price from the previous year.
    A low price will mean some farmers go out of business. Also, a low price will discourage farmers from growing that crop in the next year.
    Demand for agricultural goods is usually price inelastic (a fall in price only causes a smaller % increase in demand)

  127. Avatar Agbo Ugochukwu Lilian says:

    Department: Business Education
    Vacuity: Vocational and Technical Education
    Reg Number 2020/244243
    Name: Agbo Ugochukwu Lilian

    Answers:

    1: The indifference curve theory shows a combination of two goods X and Y in various quantities that provides equal satisfaction (Utility). It is used to describe the point where individual have a particular preference for either one good or another based on their quantities.

    Assumptions:
    a) In indifference curve, the prices of the two goods are given
    b). The consumer taste habits and income remain constant during the analysis
    c). There are only two goods X and Y
    d). The consumer acts rationally as to maximize satisfaction

    Criticism:
    a). In between two indifference curves are the same plane as M and A, the consumer will still prefer every point in the space on the diagram
    b). Indifference curve can neither be touched nor intersect
    c). An indifference curve cannot touch each axis
    d). An indifference curve is not necessarily parallel to each other.

    2:. A budget constraint of a consumer requires that the amount of money spent on the two goods be no more than the total amount the consumer has to spend
    Budget constraint is the analysis that shows all those combinations of two goods which the consumer can buy by spending his given income on the two goods at their given prices
    It is noted that any combination of the goods will beyond the reach of the consumer. But, any combination lying within the budget line will be well within the reach of the consumer.

    3: Cobweb theory
    Cobweb theory is the idea that price fluctuations can lead to fluctuations in supply which cause a cycle of rising and falling prices. In a simple cobweb model, we assume there is an agricultural market where supply can vary due to variable factors, such as the weather.

    Assumptions Of Cobweb Theory:
    a) In an agricultural market, farmers have to decide how much to produce a year in advance – before they know what the market price will be.
    b) A key determinant of supply will be the price from the previous year.
    c) A low price will mean some farmers go out of business.
    d) Also, a low price will discourage farmers from growing that crop in the next year.

  128. Avatar OGBODO EUNICE IFEBUCHE 2020/244990 says:

    Answer to question 1
    What Is an Indifference Curve?
    An indifference curve is a chart showing the combinations of two goods or commodities that leave the consumer equally satisfied thereby making the consumer indifferent.
    .Assumptions of indifference curve are:
    1. Consumer is rational; 
    2. Price of goods is constant;
    3. Higher IC curve gives the highest satisfaction and lowest curve gives lowest satisfaction;
    4. Two IC curves never intersect each other;
    5. Consumers spend a small part of their income.
    Criticisms of the Indifference Curve
    Indifference curves, like many aspects of contemporary economics, have been criticized for oversimplifying or making unrealistic assumptions about human behavior.
    For example, consumer preferences might change between two different points in time, rendering specific indifference curves practically useless. Other critics note that it is theoretically possible to have concave indifference curves or even circular curves that are either convex or concave to the origin at various points..
    Answer to question 2
    What is a budget constraint?
    A budget constraint is an economic term referring to the combined amount of items you can afford within the amount of income available to you..Budget constraint equation
    (P1 x Q1) + (P2 x Q2) = m
    In this equation, P1 is the cost of the first item, P2 is the cost of the second item and m is the amount of money available. Q1 and Q2 represent the quantity of each item you are purchasing.
    Utility maximisation
    Utility maximisation refers to the concept that individuals and firms seek to get the highest satisfaction from their economic decisions.
    For example, when deciding how to spend a fixed some, individuals will purchase the combination of goods/services that give the most satisfaction.
    Utility maximisation can also refer to other decisions – for example, the optimal number of hours for labour to supply their labour. Working more increases income, but reduces leisure time.
    Answer to question 3
    Cobweb theory is the idea that price fluctuations can lead to fluctuations in supply which cause a cycle of rising and falling prices.
    In a simple cobweb model, we assume there is an agricultural market where supply can vary due to variable factors, such as the weather.
    Assumptions of Cobweb theory
    In an agricultural market, farmers have to decide how much to produce a year in advance – before they know what the market price will be. (supply is price inelastic in short-term)
    A key determinant of supply will be the price from the previous year.
    A low price will mean some farmers go out of business. Also, a low price will discourage farmers from growing that crop in the next year.
    Demand for agricultural goods is usually price inelastic (a fall in price only causes a smaller % increase in demand).
    Limitations of Cobweb theory
    Rational expectations. The model assumes farmers base next years supply purely on the previous price and assume that next year’s price will be the same as last year (adaptive expectations). However, that rarely applies in the real world. Farmers are more likely to see it as a ‘good’ year or ‘bad year and learn from price volatility.
    It may not be easy or desirable to switch supply. A potato grower may concentrate on potatoes because that is his speciality. It is not easy to give up potatoes and take to coconuts

  129. Avatar Edeh loveth Ifeoma says:

    Name-Edeh loveth Ifeoma
    Matric no-2020/242988
    Department-combine social science
    Economics/political science
    Course- eco 201
    An online quiz and discussion about budget constraints

    1briefly discuss the indifference curve (including its assumptions and criticisms)
    An indifference curve is a graphical representation of a combined products that gives similar kind of satisfaction to a consumer thereby making them indifferent.Every point on the indifference curve shows that an individual or a consumer is indifferent between the two products as it gives him the same kind of utility.
    Assumptions of indifference curves are:
    The consumer is rational to maximize the satisfaction and makes a transitive or consistent choice. The consumer is expected to buy any of the two commodities in a combination. Consumers can rank a combination of commodities based on their satisfaction levels.
    The indifference approach is based on three basic assumptions: the assumption of completeness (or law of comparison), the assumption of consistency (or transi tivity) and the assumption of non-satiation (or non-satiety). These assumptions may sound complicated, but they are actually quite simple.
    Criticisms of indifference curves is that it has been criticized for being an ‘old wine in a new bottle’ for it has merely rehashed the concept of diminishing marginal utility of a product in new terms.
    2,write short note on budget constraints and utility maximization
    What is budget constraints all about ? A budget constraint occurs when a consumer is limited in consumption patterns by a certain income. When looking at the demand schedule we often consider effective demand. Effective demand is what people are actually able to spend given their limitations of income.
    Temporary budget constraints can be overcome by borrowing, but in the long term budget constraints are determined by income such as rent and wages.it can also be defined as maximum combined items one can afford with the income generated by the individual. Based on the money .
    What is utility maximization?
    Utility maximization is a strategic scheme whereby individuals and companies seek to achieve the highest level of satisfaction from their economic decisions. For example, when a company’s resources are limited, management will implement a plan of purchasing goods or services that provides the maximum benefit.
    The consumer may consider purchasing more of one item and less of another. Through maximizing utility, the consumer will buy an item that produces the greatest marginal utility with the least amount of spending.
    3what is cobweb theory?
    The cobweb model or cobweb theory is an economic model that explains why prices might be subject to periodic fluctuations in certain types of markets. It describes cyclical supply and demand in a market where the amount produced must be chosen before prices are observed. The cobweb theorem is also an economic model used to explain how small economic shocks can become amplified by the behaviour of producer.The classical cobweb theorem is extended to include production lags and price forecasts. Price forecasting based on a longer period has a stabilizing effect on prices. Longer production lags do not necessarily lead to unstable prices; very long lags lead to cycles of con- stant amplitude. The classical cobweb requires elasticity of demand to be greater than that of supply; this is not necessarily the case in a more general setting, price forcasting has a stabilizing effect. Random shocks are also considered.

  130. Avatar Ezeuduji bright Ifechukwu. Reg no : 2020/242590 says:

    Ezeuduji bright Ifechukwu Your comment is awaiting moderation
    1 second ago
    Important Assumptions of Indifference Curve Analysis Article shared by Indifference curves analysis is based upon some assumptions, which determine its strength, applicability and shortcomings. W.J. Baumol has taken three main assumptions of non-satiety, transitivity and diminishing marginal rate of substitution. The various assumptions of the analysis are explained below. (a) Non Satiety: ADVERTISEMENTS: This assumption implies that the consumer has not reached the point of saturation in the consumption of any good. Thus, he always prefers to have more of both commodities. He always tries to move to a higher indifference curve to get higher and higher satisfaction. This assumption is called monotonicity of preferences. (b) Completeness: To enable the consumer to make an optimal choice in the commodity space (entire area lying between the X-axis and Y-axis, it is assumed that between any two bundles, either the consumer is indifferent or one is preferred to other. Thus, every commodity bundle will lie on some indifference curve. (c) Transitivity: It is assumed that consumer’s choices are characterised by transitivity and consistency. Given three commodities bundles ‘A’, ‘B’, and ‘C’, if a consumer prefers ‘B’ to ‘A’ and ‘C’ to ‘B’, he will definitely prefers ‘C’ to ‘A’. That is, if B > A, C > B, then C > A. Similarly, if the consumer is indifferent between ‘A’ and ‘B’, ‘B’ and ‘C\ then he will be indifferent between ‘A’ and ‘C’. The consistency assumption implies well defined preferences, that is, if A A. (d) Diminishing Marginal Rate of Substitution: ADVERTISEMENTS: It is assumed that both the commodities ‘X’ and ‘Y’ obey the law of diminishing marginal utility, even if one of the commodities is money. It implies, as more and more units of ‘X’ are substituted for ‘Y’, consumer will be ready to sacrifice lesser and lesser units of ‘Y’ for each additional unit of ‘X’. Similarly, consumer will be ready to give up lesser and lesser units of commodity ‘X’ for each additional unit of commodity ‘Y’. (e) Two Commodities: It is assumed that consumer has a fixed amount of money whole of which is to be spent on the two goods, given constant prices of both the goods. This is a very restrictive assumption, because, in reality, the consumer deals with a large number of commodities. This restrictive assumption is made to facilitate graphic representation of indifference curves. Though, we can have (at the most) three dimensional diagrams to handle three commodities case, but, is very difficult to work with it. The problem of multi commodities can be overcome by treating a number of commodities as the composite commodity or more conveniently by money. Utility Maximization: Budget Constraints & Consumer Choice Instructor: Kevin Newton Show bio Cite this lesson In utility maximization, consumers strive to spend money in ways that provide the greatest amount of resources and satisfaction for the least cost. Learn about budget constraints and consumer choices in the context of utility maximization, review utility as it pertains to consumers, and understand why consumers care about this and the impact if they ignore it. U Utility for Consumers Let’s say that you are a college student whose part-time job ut that doesn’t mean that you don’t have to care about utility. Say that the choice for Friday night is between a show of student bands put on by the college activities council and a concert by your favorite band. The student show is free, but the concert is $50 a ticket. Unless you have a really good reason to go to the student show, chances are you will be inclined to spend that $50 on concert tickets. Now, you couldn’t do that if you earlier skipped through the quad throwing money at random people, could you? By paying attention to the utility that your resources can bring you, you can make sure you’re at the concert where you want to be. To unlock this lesson you must be a Study.com Member. Create your account Impact if Ignored Really comical things happen if a consumer ignores utility. Early in this lesson, I alluded to the idea of a person throwing money at random people. Now, obviously there are some examples, especially in music, of people throwing money up in the air. For the individuals who do this, there may be some level of utility gained from the enjoyment of knowing that they are wealthy enough to afford to literally throw money away. Chances are that you don’t want that to happen to your $200 paycheck. To unlock this lesson you must be a Study.com Member. Create your account Lesson Summary In this lesson, we focused on the importance of utility for consumers. Using the example of a college student’s earnings from a part-time job, we looked at how the real resource at play in economics is not money, but utility. We gave examples of actions that maximize utility, such as the opportunity to go to a professional concert instead of a college-run one. Additionally, we saw how utility can change given the particulars of the situation, such as the decision to take a loved one to a nice dinner versus having pizza and sodas with friends. Finally, we learned how the consequences of not paying attention to utility are not always puzzling decisions, like throwing money in the air, but result in real frustration, like when you download a movie, hate it, and can’t get a refund.

  131. Avatar Okeke ONYINYECHI DANIELLA says:

    Name : OKEKE ONYINYECHI DANIELLA
    Reg no: 2020/249367
    Combined social sciences
    Economics and political science

    Assignment
    1: The indifference curve analysis measures utility ordinally. It explains consumer behaviour in terms of his preferences or rankings for different combinations of different things.
    The consumer is rational to maximize the satisfaction and makes a transitive or consistent choice.
    Indifference curve is said to make unrealistic assumptions about human behaviour. It is unable to explain risky choices undertaken by the consumer. It has been criticized for being an ‘old wine in a new bottle’ for it has merely rehashed the concept of diminishing marginal utility of a product in new terms.

    2 :budget constraint is the first piece of the utility maximization framework—or how consumers get the most value out of their money—and it describes all of the combinations of goods and services that the consumer can afford. In reality, there are many goods and services to choose from, but economists limit the discussion to two goods at a time for graphical simplicity.

    3: Cobweb model (price adjustment model in a perfect competitive market)
    One of the most studied applications of the phase diagrams and difference equations to economics is the cobweb model of price adjustment, typically applied within the flex-price perfect competitive markets, namely within those primary sector markets (e.g., commodity markets) where the price adjustment is typically determined by the interaction of supply and demand. The first articles about this model were written by the British economist Nicholas Kaldor (A Classificatory Note on the Determination of Equilibrium, 1934) and by the American agrarian economist Mordecai Ezekiel (The Cobweb Theorem, 1938).

    The model is based on a time lag between supply and demand decisions and on other key assumptions that we will see throughout the numerical example.

    Let us have the following linear demand and supply functions:
    3Cobweb model (price adjustment model in a perfect competitive market)
    One of the most studied applications of the phase diagrams and difference equations to economics is the cobweb model of price adjustment, typically applied within the flex-price perfect competitive markets, namely within those primary sector markets (e.g., commodity markets) where the price adjustment is typically determined by the interaction of supply and demand. The first articles about this model were written by the British economist Nicholas Kaldor (A Classificatory Note on the Determination of Equilibrium, 1934) and by the American agrarian economist Mordecai Ezekiel (The Cobweb Theorem, 1938).

    The model is based on a time lag between supply and demand decisions and on other key assumptions that we will see throughout the numerical example.

  132. Avatar Ezeuduji bright Ifechukwu says:

    Important Assumptions of Indifference Curve Analysis
    Article shared by
    Indifference curves analysis is based upon some assumptions, which determine its strength, applicability and shortcomings. W.J. Baumol has taken three main assumptions of non-satiety, transitivity and diminishing marginal rate of substitution.

    The various assumptions of the analysis are explained below.

    (a) Non Satiety:
    ADVERTISEMENTS:

    This assumption implies that the consumer has not reached the point of saturation in the consumption of any good. Thus, he always prefers to have more of both commodities. He always tries to move to a higher indifference curve to get higher and higher satisfaction. This assumption is called monotonicity of preferences.

    (b) Completeness:
    To enable the consumer to make an optimal choice in the commodity space (entire area lying between the X-axis and Y-axis, it is assumed that between any two bundles, either the consumer is indifferent or one is preferred to other. Thus, every commodity bundle will lie on some indifference curve.

    (c) Transitivity:
    It is assumed that consumer’s choices are characterised by transitivity and consistency. Given three commodities bundles ‘A’, ‘B’, and ‘C’, if a consumer prefers ‘B’ to ‘A’ and ‘C’ to ‘B’, he will definitely prefers ‘C’ to ‘A’.

    That is, if B > A, C > B, then C > A. Similarly, if the consumer is indifferent between ‘A’ and ‘B’, ‘B’ and ‘C\ then he will be indifferent between ‘A’ and ‘C’. The consistency assumption implies well defined preferences, that is, if A A.

    (d) Diminishing Marginal Rate of Substitution:
    ADVERTISEMENTS:

    It is assumed that both the commodities ‘X’ and ‘Y’ obey the law of diminishing marginal utility, even if one of the commodities is money. It implies, as more and more units of ‘X’ are substituted for ‘Y’, consumer will be ready to sacrifice lesser and lesser units of ‘Y’ for each additional unit of ‘X’. Similarly, consumer will be ready to give up lesser and lesser units of commodity ‘X’ for each additional unit of commodity ‘Y’.

    (e) Two Commodities:
    It is assumed that consumer has a fixed amount of money whole of which is to be spent on the two goods, given constant prices of both the goods. This is a very restrictive assumption, because, in reality, the consumer deals with a large number of commodities. This restrictive assumption is made to facilitate graphic representation of indifference curves.

    Though, we can have (at the most) three dimensional diagrams to handle three commodities case, but, is very difficult to work with it. The problem of multi commodities can be overcome by treating a number of commodities as the composite commodity or more conveniently by money.
    Utility Maximization: Budget Constraints & Consumer Choice
    Instructor: Kevin Newton
    Show bio

    Cite this lesson

    In utility maximization, consumers strive to spend money in ways that provide the greatest amount of resources and satisfaction for the least cost. Learn about budget constraints and consumer choices in the context of utility maximization, review utility as it pertains to consumers, and understand why consumers care about this and the impact if they ignore it. U
    Utility for Consumers
    Let’s say that you are a college student whose part-time job
    ut that doesn’t mean that you don’t have to care about utility. Say that the choice for Friday night is between a show of student bands put on by the college activities council and a concert by your favorite band. The student show is free, but the concert is $50 a ticket. Unless you have a really good reason to go to the student show, chances are you will be inclined to spend that $50 on concert tickets. Now, you couldn’t do that if you earlier skipped through the quad throwing money at random people, could you? By paying attention to the utility that your resources can bring you, you can make sure you’re at the concert where you want to be.

    To unlock this lesson you must be a Study.com Member.
    Create your account

    Impact if Ignored
    Really comical things happen if a consumer ignores utility. Early in this lesson, I alluded to the idea of a person throwing money at random people. Now, obviously there are some examples, especially in music, of people throwing money up in the air. For the individuals who do this, there may be some level of utility gained from the enjoyment of knowing that they are wealthy enough to afford to literally throw money away. Chances are that you don’t want that to happen to your $200 paycheck.

    To unlock this lesson you must be a Study.com Member.
    Create your account

    Lesson Summary
    In this lesson, we focused on the importance of utility for consumers. Using the example of a college student’s earnings from a part-time job, we looked at how the real resource at play in economics is not money, but utility. We gave examples of actions that maximize utility, such as the opportunity to go to a professional concert instead of a college-run one. Additionally, we saw how utility can change given the particulars of the situation, such as the decision to take a loved one to a nice dinner versus having pizza and sodas with friends. Finally, we learned how the consequences of not paying attention to utility are not always puzzling decisions, like throwing money in the air, but result in real frustration, like when you download a movie, hate it, and can’t get a refund.

  133. Avatar Ozongwu favour adanna 2020/242615 says:

    INDIFFERENCE CURVE
    Indifference curve is a graphical representation of a combination of product that gives similar kind of satisfaction. It shows a combination of two goods in various quantities that provides equal satisfaction (utility) to an individual.
    Indifference curve assumptions
    The consumer is rational to maximize the satisfaction and makes a transitive or consistent choice.
    – two indifference curve can never cross ( intersect ) .
    – The farther out an indifference curve lies, the higher the utility it indicates.
    – Indifference curves always slope downward.
    – Indifference curves are convex .
    Indifference curve criticism
    * Old wine in new bottles – It substitutes the concept of preference for utility, it also substitutes marginal utility by marginal rate of substitution and the law of diminishing utility by the principle of diminishing marginal rate of substitution.

    (2). BUDGET CONSTRAINT
    Budget constraint represents all the combination of goods and services that a consumer may purchase given current prices within his or her given income , the consumer can only purchase as much as their income will allow.

    (2b) UTILITY MAXIMIZATION
    Utility maximization refers to the concept that individual and firms seek to attain the highest level of satisfaction form their economic decisions.

    COBWEB THEORY
    COBWEB THEORY can be defined as the idea or concept that price fluctuations can lead in supply which cause a cycle of rising and falling of prices.

  134. Avatar Sylvanus favour chinagorom says:

    SYLVANUS FAVOUR CHINAGOROM
    2020/242141

    1. Indifference curve is a graphical representation of combined products that gives similar kind of satisfaction to a consumer there by making them indifferent.
    In economics, an Indifference curve connects points on a graph representing different quantities of two goods, points between which a consumer is indifferent.
    That is any combinations of two products indicated by the curve will provide the consumer equal levels of utility, and the consumer has no preference for one combination on the same bundle of goods over a different combination on the same curve.
    Indifference curve is downward sloping and negative.

    ASSUMPTIONS OF INDIFFERENCE CURVE

    1. The consumer is rational to maximize the satisfaction and make a transitive or consistent choice.
    2. Price of goods is constant.
    3. There are two good X and Y.
    4. Two Indifference curves never intersect each other
    5. The consumer prefers more or X to less Y or more of Y to less X .
    6. An Indifference curve is always convex to the origin.

    CRITICISM OF INDIFFERENCE CURVE
    1. Indifference curve is said to make unrealistic assumptions about human behaviour.
    2.lt is unable/cannot explain risky choices undertaken by the consumer.
    3. It’s an’ old wine in a new bottle’for it has merely rehashed the concept of diminishing marginal utility of a product in new terms.
    4. Indifference curve are non-transitive.
    5. It’s analysis is based on the weak ordering hypothesis.

    2. Budget constraint is an economic term which simply shows what consumer can afford.it also represents all combinations of goods and services that a consumer may purchase given current prices within his/her given income.
    It refers to the maximum combined item one can afford with the income generated by the individual. Based on the money available each amount, an individual must allocate their funds efficiently to purchase goods and services.
    The formula of Budget constraint is expressed as follows:
    (P1×Q1)+(P1×Q2)=M.
    UTILITY MAXIMIZATION.
    Utility maximization is the concept that individuals and organizations seek to attain the highest level of satisfaction for economic decisions.
    It means making economic decisions that guarantee the highest level of consumer satisfaction (benefit).
    The condition for maximising is:MUA/PA=MUB/PB ; Where MU=is marginal utility and price.

    3. Cobweb theory is the idea that price fluctuations can lead to fluctuations in supply which cause a cycle of rising and falling prices.it describes cyclical supply and demand in a market where the amount produced must be chosen before prices are observed. Producer’s expectations about prices are assumed to be based on observations of previous prices. In simple cobweb, we assume there is an agricultural market where supply can vary due to variable factors, such as whether.
    ASSUMPTIONS OF COBWEB THEORY.
    1. If there is a very good harvest,then supply will be greater than expected and this Will cause a fall in price
    2. However,this fall in price may cause some Farmers to go out of business. Next year farmers may be put off by the low price and producer something else. The consequences is that if we have one year of low prices, next year farmers will reduce supply.
    3. If supply is reduced,then this will cause the price to rise.
    4. If farmers see high prices and high profits,then next year they are inclined to increase supply because that product is more profitable.
    In theory,the market could fluctuate between high price and low prices as suppliers respond to past prices.
    COBWEB HAVE BEEN DIVIDED INTO:
    1. Continuous cobwebs: The fluctuations in price and output continues repeating about equilibrium at same level.
    2. Divergent cobwebs: The amplitude of the fluctuation increases with the passage of time. Once disturbed from position of equilibrium the economy moves cumulatively away from it into the dole drums of disequilibrium. This happens when the slope of the supply curve less steep than the slope of demand curve.
    3. Convergent cobwebs: In this case, the economy of and when disturbed from its equilibrium position,has a tendency to regain it through a series of oscillations. Each fluctuations is move damped than the one preceding it. This narrowing down of the amplitude of the fluctuations occurs when the slope of the supply curve is steeper than the demand curve.

  135. Name : Emmanuel patience N
    Reg no: 2020/248472
    Faculty; vocational and technical education
    Dept: Business Education
    Email: preciousemmanuel530@gmail.com

    1)indifference curve is as the locus point representing different combination of two goods which yields equal utility to the consumer so that the consumer is indifferent to the combination consumed
    Assumptions
    1) more of a commodity is better than less
    2) preference or indifference of a consumer are transitive
    3) Diminishing marginal rate of substitution

    Criticism
    It has been criticized for being the old wine in a new bottle for it has merely rehashed the concept of diminishing marginal utility of products in new terms

    2: budget constraints is the total amount of items one can afford within a current budget, it illustrates the range of choices available with the budget

    Utility maximization is the concept that individual and organizations seek to attain the highest level of satisfaction from their economic decisions

    3: cobweb theory is the idea that price fluctuations can lead to fluctuations in supply which cause a cycle of rising and falling prices

    Assumptions
    It assumes there is an agricultural market where supply can vary due to variable factors such as weather

  136. Name: Emmanuel patience N
    Reg no: 2020/248472
    Dept: business Education
    Faculty: vocational and technical education
    Email: preciousemmanuel530@gmail. Com

    1: an indifference curve is a locus point representing different combinations of two goods which yields equal utility to the consumer so that the consumer is indifferent to the combination consumed.
    Assumptions
    1) more of commmodity is better than less
    2) preference or indifferences of consumer are transiting
    3) Diminishing marginal rate of substitution

    Criticisms
    It has been criticized for being an old wine in a new bottle for it merely rehashed the concept of diminishing marginal utility of a product in a new terms.

    2: budget constraints is the total amount of items one can afford within a current budget , it illustrates the range of choices available within that budget

    Utility maximization is the concept that individual and organizations seek to attain the highest level of satisfaction from their economic decisions.

    3: the cobweb theory was propounded in 1930 independently by many people, the cobweb model is used to explain the dynamics of demand, supply and price over long periods of time.
    Assumptions
    1) Both supply and demand function are linear
    2) the current year supply depend upon the last year decision regarding output
    3)the current period of year is divided into sub period of week or fortnight etc

  137. <