Question

List and briefly explain each of the four properties of indifference curves. Provide an example where you have made a buying decision based on one or more of these properties. Justify your answer.

Answer 1

Indifference curves (IC) are a set of curves showing various different combination of goods which give the same utility to the consumer.

The four properties of indifference curves are:

1. IC are downward sloping (which prove it has negative MRS i.e. more of one good will have to be given up to get more of another good)

2. Higher IC re preferred over lower IC (as higher IC are related to higher utility)

3. No two ICs can intersect each other (this is because intersection of two ICs would mean points on two different ICs give the same utility, which is not possible. Every utility level has only one dedicated IC)

4. ICs are convex in shape (negative MRS or law of increasing opportunity cost)

One buying decission made using this property is when i went to buy bread and eggs.

Since buying 2 bread and 4 eggs lies on a higher IC than buying 1 bread and 2 eggs, it means the first combination gives higher utility and thus is preferred