00:01
So first of all, let's draw a diagram, right? this consumer equilibrium is a theory about how consumers choose between different goods.
00:08
I'm going to call these goods x and y, and it usually starts with a budget line.
00:13
And a budget line looks something like this, right? a budget line tells you how much you can afford, right? so in here, you can afford.
00:24
Out here is impossible, right? so rule one of consumer equilibrium is use all resources, right? don't waste resources.
00:37
If you are going to do as well for yourself as possible, you don't want to waste anything.
00:45
So the key thing is that in here, for example, this is wasteful because we could do much better, right? we could move, for example, to a point like here, which is what an economist would call efficient.
01:01
Because it's a point on the budget line, right? at the wasteful point, we're not using all our resources.
01:06
We could get more of both x and y by moving up to the budget line, right? we can get more of both, and more of both is usually good, right? the second condition, so is that we should be on the exterior of the budget line, being on that black line somewhere, is we should set the slope of budget line equal to the slope of indifference curve.
01:33
And an indifference curve is telling you something about your preferences.
01:39
A budget line is telling you about the economy, about the market.
01:43
But the indifference curve is telling you about your preferences.
01:45
So the budget line tells you what you can afford.
01:48
The indifference curve tells you what you want.
01:51
Right.
01:51
So if i call this indifference one, all points equal satisfaction, let's say.
02:01
An indifference curve tells you satisfaction.
02:05
About a set of points which you find all equally satisfied.
02:09
And the whole idea is about setting it tangent is suppose you didn't.
02:13
Suppose you have an indifference curve here, i0, and you picked a point here that is not tangent.
02:23
Well, any point that's not tangent is wasteful, right? this counts as a wasteful point.
02:29
It's not efficient...