Question

List the properties of indifference curves and explain the intuition behind each property (that is, why must the indifference curve obey this property)?

Answer 1

The indifference Curve has three properties.

Suppose there are two goods, x and y depicted on X and Y axis respectively. Indifference Curves on XY plane are drawn which have following properties:

1) Indifference Curve are downward sloping. This is because as we consume more of x, we have to consume less of y to maintain same level of utility or satisfaction or to remain on same indifference Curve.

2) Indifference Curve are convex to the original. This is due to the decreasing Marginal Rate of Substitution(MRS). Decreasing MRS is due to the working of the law of Diminishing Marginal utility. Decreasing MRS means rate at which good y is given up to increase a unit of x is decreasing while being on the same indifference curve. This happens because as more of X is Consumed, Marginal Utility of good x decreases and Therefore, less good y is given up to have more of x. Therefore, Indifference curves are convex to the origin.

3) Indifference Curves can't cross each other. This is because each Indifference Curve represents unique level of Utility or satisfaction. If the two Indifference Curves cross, the Utility representation by each Indifference Curve is not unique which is not possible.