Indifference Curve Analysis: The Correct and the Incorrect
Keywords:Indifference curve, convex, concave, budget line
The thesis of this paper is that when the indifference curve is concave to the origin, the optimal point on the budget line is not the corner solution on the highest (most north eastern) indifference curve, the analysis all too often offered in the literature, but, rather, somewhat paradoxically, the lowest (most south western) indifference curve. The economics profession, as articulated through the megaphone of intermediate micro economics texts, offers a mixed result in this regard. Some few do offer a correct analysis, but many do not; others ignore the issue entirely. The contribution of the present paper and the aim of our research is to provide a correction of the widespread but erroneous indifference curve analysis that appears in many of our intermediate microeconomics texts. Our methodology is one of contrast: we offer what we see as both the correct and the incorrect versions of indifference curve analysis.
Barnett, W. II, & Block W. E. (2010). Mises never used demand curves; was he wrong? Ignorant? No: The Antimathematicality of Demand Curves. Dialogue, 1, http://www.uni-svishtov.bg/dialog/2010/1.10.WB.pdf.
Barnett, W. II. (2003). The Modern Theory of Consumer Behavior: Ordinal or Cardinal?. Quarterly Journal of Austrian Economics. 6 (1).
Bernheim, B. D., & Whinston, M. D. (2008). Microeconomics. McGraw-Hill Irwin.
Block, W., Westley, C. & Padilla, A. (2008). Internal vs. external explanations: a new perspective on the history of economic thought. Procesos De Mercado: Revista Europea De Economia Politica, 2.
Block, W. (1999). Austrian Theorizing, Recalling the Foundations: Reply to Caplan. Quarterly Journal of Austrian Economics, 2(4).
Block, W. (2003). Realism: Austrian vs. Neoclassical Economics, Reply to Caplan. Quarterly Journal of Austrian Economics, 6(3).
Block, W. (2005). Rejoinder to Caplan on Bayesian Economics, Journal of Libertarian Studies, 19(1).
Block, W. (2007). Reply to Caplan on Austrian Economic Methodology. Corporate Ownership & Control, 4(2).
Block, W. E., & Aguirre Sotelo, J. A. M. (2012). Indifference curve analysis: beyond simplifying assumptions. Journal for Economics Educators; 12(1). Retrieved fromhttp://frank.mtsu.edu/~jee/2012/2_MS1211_pp7to12.pdf.
Boulding, K. E. (1955). Economic Analysis, Vol I. Microeconomics. 4th ed., New York: Harper & Row.
Browning, E. K. &. Zupan M. A. (2006). Microeconomics: Theory and Applications. 9th ed.
Callahan, G. (2001). Logical Economics vs. Mathematical Economics. February 17. Retrieved from http://www.mises.org/story/616.
Callahan, G. (2003). Choice and Preference, February 10. Retrieved from http://mises.org/story/1163.
Caplan, B. (1999). The Austrian Search for Realistic Foundations. Southern Economic Journal, 65(4). Retrieved from http://www.gmu.edu/departments /economics/ bcaplan/ausfin2.doc
Caplan, B. (2001). Probability, Common Sense, and Realism: A Reply to Huelsmann and Block. Quarterly Journal of Austrian Economics, 2(4). Retrieved from http://www.mises.org/journals/qjae/pdf/qjae4_2_6.pdf.
Caplan, B. (2003). Probability and the Synthetic A Priori: A Reply to Block. Quarterly Journal of Austrian Economics, 6(3). Retrieved from http://www.mises.org/journals/ qjae/pdf/qjae6_3_5.pdf.
Caplan, B. (2008). The Trojan Horse Example, June 16. Retrieved from http://econlog.econlib.org/archives/2008/06/the_trojan_hors.html.
Caplan, B. (Undated). Why I am not an Austrian Economist. http://www.gmu.edu/depts/economics/bcaplan/whyaust.htm.
Carilli, A. M., & Dempster, G. M. (2003). A note on the treatment of uncertainty in economics and finance. Journal of Education for Business, 79(2).
Due, J. F., & Clower, R. W. (1966). Intermediate Economic Analysis, 5th ed., Homewood, IL: Richard D. Irwin.
Ferguson, C. E. (1972). Microeconomic Theory. 3rd ed., Homewood, IL: Richard D. Irwin.
Frank, R. H. (2008). Microeconomics and Behavior. 7th ed. McGraw-Hill Irwin.
Friedman, D. D. (1990). Price Theory: An Intermediate Text. 2nd ed. Cincinati, OH: South-Western.
Garrison, R. W. (2009). An Armchair View of Escalators and Moving Walkways. In: F. G. Mixon & R. Cebula (Eds.). Expanding Teaching and Learning Horizons in Higher Education: Essays on Economic Education. Hauppauge, NY: Nova Science Publishers.
Henderson, J. M., & Quandt, R. E. (1958). Microeconomic Theory: A Mathematical Approach. New York, N.Y.: McGraw-Hill Book Company, Inc.
Herbener, J. M. (1996). Calculation and the Question of Mathematics. Review of Austrian Economics, 9(1).
Hope, S. (1999). Applied Microeconomics. New York, N.Y.: John Wiley and Sons, Inc.
Hoppe, H. H.. (2005). Must Austrians Embrace Indifference?. Quarterly Journal of Austrian Economics, 8(4).
Hülsmann, J. G.. (1999). Economic Science and Neoclassicism. Quarterly Journal of Austrian Economics, 2(4).
Lancaster, K. (1974). Introduction to Modern microEconomics. 2nd ed. Chicago: Rand McNally.
Landsburg, S. E. (2011). Price Theory and Applications. 8th ed. South-Western, Cengage Learning.
Leftwich, R. H. (1973). The Price System and Resource Allocation. 5th ed. Hinsdale IL: The Dryden Press.
Leoni, B., & Frola, E. (1977). On mathematical thinking in economics. Journal of Libertarian Studies, 1(2).
Liebhafsky, H. H. (1968). The Nature of Price Theory. 2nd ed. Homewood, IL: The Dorsey Press.
Machaj, M. (2007). A Praxeological Case for Homogeneity and Indifference. New Perspectives on Political Economy,
Mansfield, E. & Yohe, G. (2004). Microeconomics: Theory/Applications. 11th ed., New York: W.W. Norton.
Mathis, S. A., & Koscianski, J. (2002). Microeconomic Theory: An Integrated Approach. Upper Saddle River, N.J.: Prentice Hall.
McCloskey, D. N. (1982). The Applied Theory of Price. New York: Macmillan.
Mises, L. von. (1998). Human Action. Scholars? Edition. Auburn: Mises Institute. Retrieved from http://www.mises.org/humanaction/pdf/Human ActionScholars.pdf.
Mises, L. von. (1977). Comments about the mathematical treatment of economic problems. Journal of Libertarian Studies, 1(2).
Mises, L. von. (2009). Review of Man, Economy and State. March 18. Retrieved from http://blog.mises.org/9631/mises-reviews-rothbards-man-economy-and-state/.
Murphy, R. P. (2008). Austrian Realists. July 17. Retrieved from http://mises.org/story/3028.
Murphy, R. P., Wutscher R., & Block W. E. (2010). Mathematics in Economics: An Austrian Methodological Critique. Philosophical Investigations, 33(1), http://onlinelibrary.wiley.com/doi/10.1111/j.1467-9205.2009.01397.x/full.
Nicholson, W. (2005). Microeconomic Theory: Basic Principles and Extensions, 9th ed. Thomson South-Western.
Perloff, J. M. (2012). Microeconomics. 6th ed., Addison-Wesley, Pearson.
Quirk, J. P. (1982). Intermediate Microeconomics. 2nd ed., Chicago: Science Research Associates.
Raimondo, J. (2000). An Enemy of the State: The Life of Murray N. Rothbard. Amherst N.Y.: Prometheus Books.
Rajsic, P. (2010). Did Rothbard ?Borrow? the Income and Substitution Effects? April 8. Retrieved from
Rockwell, L. H. (2000). Rothbard Vindicated. July 7. Retrieved from http://www.lewrockwell.com /rockwell/rothbard.html.
Rothbard, M. N. (2004). Man, Economy and State, Auburn AL: Ludwig von Mises Institute, Scholar?s Edition. Retrieved from http://www.mises.org/rothbard /mes.asp.
Rothbard, M. N. (1997a). Praxeology as the Method of the Social Sciences. In M. N. Rothbard (Ed.), The Logic of Action One. UK: Edward Elgar Publishing Limited.
Rothbard, M. N. (1997b). Praxeology: The Methodology of Austrian Economics. In: M. N. Rothbard (Ed.). The Logic of Action One. UK: Edward Elgar Publishing Limited.
Rothbard, M. N. (2009). A Note on Mathematical Economics. Retrieved from http://mises.org/daily/3638.
Schotter, A. (1994). Microeconomics: A Modern Approach. Harper Collins.
Stigler, G. J. (1966). The Theory of Price. 3rd ed. New York, N.Y.: The MacMillan Company
Stonier, A. W. & Hague, D. C. (1964). A Textbook of Economic Theory. 14th ed., New York, N.Y.: John Wiley and Sons, Inc.
Stringham, E., & Mark, M. (2004). Economic Analysis of Tort Law: Austrian and Kantian Perspectives. In: M. Oppenheimer & N. Mercuro (Eds.). Law and Economics: Alternative Economic Approaches to Legal and Regulatory Issues. New York: M.E.
Stringham, E. (2001). Kaldor-Hicks Efficiency and the Problem of Central Planning. Quarterly Journal of Austrian Economics, 4(2).
Stringham, E. (2008). Economic Value and Cost Are Subjective. In: P. Boettke (Ed.). The Handbook of Austrian Economics. Cheltenham, UK: Edward Elgar Publishing, (forthcoming).
Thompson, Jr., A. A. (1989). Economics of the Firm: Theory and Practice. 5th ed. Englewood Cliff, N.J.: Prentice Hall.
Varian, H. R. (2006). Intermediate MicroEconomics: A Modern Approach. 7th ed. New York: W.W. Norton.
Vickrey, W. S. (1964). Microstatics. New York: Harcourt, Brace & World.
Wetzstein, M. E. (2005). Microeconomic Theory: Concepts and Connections. Thomson South-Western.