Characteristics of Indifference Curves with diagram

But a glance at Fig.8.5 will show that this is absurd conclusion since combination A contains more of good Y than combination B, while the amount of good X is the same in both the combinations. If the consumer increases his consumption beyond X or K, total utility will fall. If he increases his consumption of X so as to reach the dotted portion of the I1 curve , he gets negative utility. If to compensate himself for this loss of utility, he increases the consumption of Y, he may be again on the dotted portion of the curve .

All points on the curve show different combinations of apples and bananas. These points are joined with the help of a smooth curve, known as indifference curve . An indifference curve is the locus of all the points, representing different combinations, that are equally satisfactory to the consumer.

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

Standard indifference curve analysis operates using a simple two-dimensional chart. 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.

One of the properties of the indifference curve is that it is strictly convex and never concave. When the consumer repeatedly substitutes or consumes one good over another, the marginal rate of substitution diminishes. A higher indifference curve shows a higher level of satisfaction. Hence, a consumer prefers to reach the tallest line to attain a higher utility level. But there are some budget constraints due to the low income of the consumer.

Important Properties of Indifference Curve (with curve diagram)

In Figure 12.4 combination В of OX1 +OY1 is preferable to combination A which has a smaller amount of the two goods. Therefore, an indifference curve cannot slope upward from left to right. Similarly, in Figure 12.4 combination В is preferable to combination A, for combination В has more of X and the same quantity of Y.

As the consumer moves down an indifference curve taking more of x commodities, the marginal significance of x declines in terms of y commodities. As the marginal significance of x declines, the tangent of the angle TtO should also decline as both are directly related in the figure. So, a horizontal or vertical or sloping up curve is not possible.

• An indifference curve far away from the origin is higher or the upper indifference curve and close to the origin is a lower indifference curve.
• Economists have adopted the principles of indifference curves in the study of welfare economics.
• The curves that are farther away from the origin represent higher levels of satisfaction as they have larger combinations of X and Y.
• Indifference curve analysis emphasizes marginal rates of substitution and opportunity costs.

The marginal rate of substitu­tion on the contrary goes on diminishing. So the Indifference Curve has to be convex to the origin of axes. The second property of the Indifference Curve is that they are generally convex to the origin of the axes—the left hand portion is normally steep while the right hand portion is relatively flat.

Consumer’s preference of 1st bundle as compared to 2nd bundle will be called monotonic preference as 1st bundle contains more of both apples and bananas. If we plot the indifference schedule into the graph, we get the indifference curve. Hence the graphical exhibition of the indifference schedule gives an indifference curve. The following graph shows the graphical presentation of the above indifference schedule. An English Economist, Francis Ysidro Edgeworth, invented the technique of indifference curve nearly at the end of the 19th century.

Indifference Curves: Assumptions and Properties | Economics

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’. In case of perfect substitutes, the indifference curves are parallel straight lines because the consumer equally prefers the two goods and is willing to exchange https://1investing.in/ one good for the other at a constant rate. The degree of convexity of an indifference curve depends on the rate of fall in the marginal rate of substitution of X for Y. Indifference curve being downward sloping means that when the amount of one good in the combination is increased, the amount of the other good is reduced. This must be so if the level of satisfaction is to remain the same on an indifference curve.

The following diagram will help you understand this property clearer.

It is also assumed that prices of both the commodities are constant. Our mission is to provide an online platform to help students to discuss anything and everything about Economics. This website includes study notes, research papers, essays, articles and other allied information submitted by visitors like YOU.

What is the formula for an indifference curve?

When he shifts from point A to B as a vertical shift, he gets more quantity of commodity Y. The quantity of commodity Y upsurges by ‘AB’ and the quantity of commodity X remains the same . When the consumer shifts from point A to C , he gets an additional quantity of both commodities .

Along the indifference curve, there must be the same level of satisfaction. Quantity demanded is used in economics to describe the total amount of a good or service that consumers demand over a given period of time. Indifference is conceptually incompatible with real-life economic action.

Understanding Indifference Curves

The greater the fall in marginal rate of substitution, the greater the convexity of the indifference curve. The less the ease with which two goods can be substituted for each other, the greater will be the fall in the marginal rate of substitution. 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. 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.

Properties/ Features/ Characteristics/Standard of Indifference Curve

Alternately, indifference curve is a locus of points that show such combinations of two commodities which give the consumer same satisfaction. Let us understand this with the help of following indifference schedule, which shows all the combinations giving equal satisfaction to the consumer. Note that the equilibrium quantities are these for which the slope of the indifference curve four properties of indifference curve equals the slope of the budget line—that is, the place the marginal fee of substitution equals the value ratio. As could be seen from Equation four, this means that the indifference curve gets flatter as the amount of X consumed increases relative to the quantity of Y consumed. Or, as we are saying, indifference curves are concave outward, or convex with respect to the origin.