Question

In: Economics

Describe each of the four properties of indifference curves.

Describe each of the four properties of indifference curves.

Solutions

Expert Solution

An indifference curve can be defined as a graph which shows the different combination of two goods that give the consumer equal satisfaction and utility.

The properties of the Indifference curve.

1. Indifference Curves are Downward Sloping

All indifference curves have a negative slope. It means the slope downward from left to right. The slope of an indifference curve represents the rate of substitution between two goods. It means it is the rate at which an individual is willing to give up some quantity of good A to get more of good B. It means for consuming more of good X, there is need to decrease the consumption of good Y.

2.

Higher Indifference Curves Are Preferred to Lower Indifference curve

A Consumers will always prefer a higher indifference curve to a lower one. This is because according to basic economic assumption more is always better. It means a consumer always prefer to have more of goods compare to less of both goods because more goods give him more utility.

3.

Indifference Curves Cannot Intersect.

Since two different indifference curve represents two different utility along the different curve. It means if two curve intersects, then at the point of intersection the two curve utility is same. But it cannot happen because if two indifference curve utility will be different along the indifference curve. So if the two indifference curve intersects with each other, then the assumption of the indifference curve will be violated.

4.

Indifference Curves are convex ( bowed inward)

The indifference curves are usually bowed inward. This is due to the marginal rate of substitution (MRS). The marginal utility of consuming a good decrease as its supply increases.Therefore consumers are willing to give up more of good X for getting more units of good Y because they have fewer goods Y compared to good X.


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