Textbook Indifference Curves and Budget Lines
This graph shows an individual's budget curve and a set of indifference curves. Line AB is a budget curve. Click on point B at the bottom and drag it to the right or left. Notice how as you do it becomes tangent with different indifference curves. Since the slope of the budget line reflects the relative prices of biscuits and bananas, as you move point B you are changing the relative price. Each tangent point represents a different combination of biscuits and bananas. So any combination of a budget line and the point where it is tangent to a budget line represents a specific combination of relative price and quantities of bananas and biscuits purchased. If we arbitrarily choose biscuits as our currency and set the price of a biscuit equal to $1, then these points are combinations of price in $ and the quantity of bananas purchased at that price. Using the data from these points, we can construct a second graph, one showing the relation between price and the quantity of bananas purchased at that price. This second graph is the individual's demand curve.
* To display indifference curves (actually only line segments in this example), in the lefthand margin, click on the circles to the left of the object labeled Uxx, where xx is the utility level of the indiference curve. * If you can't see the entire graph area, use your browser's zoom feature to zoom out until you do. Typically this is done with something like: View > Zoom > Zoom Out * If you don't see all the graph, right-click on the graphics area and choose "Show All Objects."