Elements of Numerical Mathematical Economics with Excel

6.3. Consumer optimization and derivation of the demand curve in the ordinal approach

Let us turn now the attention to the second fundamental approach to the consumer theory, namely the ordinal utility approach.

The main concept to which the ordinal approach resorts, to solve the consumer problem, is the indifference curve (see Vilfredo Pareto, Manual of Political Economy, Appendix) which is defined as the locus of points showing different combinations of two goods providing equal utility to the consumer.

The indifference curves have some basic properties that serve to find the consumer equilibrium:

1. • they have downward (negative) slope to the right;
2. • convexity to the origin;
3. • they cannot intersect each other.
4. • higher curves represent ...