Question

In: Economics

indifference curves

indifference curves

Solutions

Expert Solution

Indifference curve is a diagrammatic presentation of an indifference set of a consumer. It shows different combinations of two commodities (like apple and oranges) offering the same level of satisfaction to the consumer.

Properties of indifference curve-

1. IC slopes downward- IC slopes downward from left to right. It means that IC has a negative slope. It implies that if the consumer decides to have more of one good, he must have less of the other.

2. IC is convex to the origin- It means that the slope of IC tends to decline, as we move along the IC from to left to right. The slope of IC is called marginal rate of substitution. It indicates the rate at which the consumer is willing to substitute one good for the other.

3. Higher IC shows higher level of satisfaction - Higher IC indicates higher level of satisfaction. Each IC in the indifference map corresponds to different level of consumer's income. Higher IC corresponds to the higher level of income.

4. ICs do not cross or intersect each other-As two IC curves cannot show the same level of satisfaction so ICs do not intersect each other.

5. IC never touch X axis or Y axis- This is because IC analysis considers the consumption of two goods. If it touches Y axis, it would mean that the consumption of Good X is zero. Likewise, if IC touches X axis, it would mean that the consumption of Good Y is zero.


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