Indifference Curve: Concept Properties Features Examples. In Figure 6, consider the indifference curves I 1 and I 2 and combination N and A respectively on them. At this point of tangency, both the curve and the line have the same slope. An indifference curve is the locus of all the points, representing different combinations, that are equally satisfactory to the consumer. If you connect these points, you willcreate a negatively sloped line. This is possible only if the curve is convex. However, what prevents you from achieving higher indifference curves is its budget constraint.
Only convex curves will lend to the principles of Diminishing Marginal Rate of substitution. Diminishing marginal rate of substitution Marginal rate of substitution may be defined as the amount of a commodity that a consumer is willing to trade off for another commodity, as long as the second commodity provides same level of utility as the first one. The study of and are emphasized. Also, if the individual has the option to increase the number of pens without decreasing the number of pencils means that is now in a new indifference curve, which reported higher profit than the last. If we move from O to X we see that the price of X decreases and reverse is the case when we move towards O.
Indifference curves slop downward to the right This is an important and obvious feature of indifference curves. However, the fact is that you can draw an infinite number of indifference curves between two indifference curves. It is convex to the origin. Hence, an indifference curve does not touch either horizontal axis or vertical axis. Thus, this theory is also known as ordinal approach. Considering that each indifference curve shows a level of satisfaction, by using several indifference curves we can illustrate different levels of satisfaction.
The individual prefers one over the other or the individual does not care which one he gets. Indifference curves are convex to the point of origin of the two axes. An indifference curve on the right is preferred than the indifference curve on the left. It slopes downward because as the consumer increases the consumption of X commodity, he has to give up certain units of Y commodity in order to maintain the same level of satisfaction. It is the declining significance of x and increasing significance of y as the consumer travels down an indifference curve which makes its shape convex to the origin and this forms the basis of Prof. This tool is known as the indifference curves, providing different combinations of goods that provide the same level of utility or satisfaction to an individual.
Diagram 11 B shows that the price of commodity X does not change while price of Y commodity changes. Simply, an indifference curve is a graphical representation of indifference schedule. There are also instances where there is 0 slope or infinite slopeif the quantity of a good is irrelevant to your enjoyment of it,like air. According to these indifference curves, the consumer would be equally satisfied at points A, B, and C, even though point Chase more of both goods than point A. Indifference curves have specific properties: Indifference curves are negatively sloped: this means that indifference curves always slope down.
It means there is consistency and transitivity in preferences. According to diminishing marginal rate of substitution, the rate of substitution of commodity X for Y decreases more and more with each successive substitution of X for Y. We, therefore, conclude that indifference curves cannot cut each other. Budget Line or Price Line 5. It is because at the point of tangency, the higher curve will give as much as of the two commodities as is given by the lower indifference curve. An Indifference map shows the different scales of preference of the consumer. It is unrealistic assumption which is not found in case of indifference curve analysis.
Indifference curves are drawn based on the consumer's presumed indifference. Other critics point out that it is theoretically possible to have concave indifference curves, or even circular curves that are either convex or concave to the origin at various points. It can be explained with the help of the following table: The above table reveals that different combinations, namely, A, B, C, D, E, F of two commodities X and Y can be purchased by the consumer with his given income Rs. A lower curve, On the other hand, will measure lesser quantities and hence the lesser level of satisfaction. Analysis is restricted to goods that yield positive marginal utility, or simply, more is better. At point A, because the consumer has a lot of Pepsi and only a little pizza, he is very hungry but not very thirsty. Table: Indifference schedule Combination Cigarette Coffee A 1 12 B 2 8 C 3 5 D 4 3 E 5 2 The above table represents various combination of coffee and cigarette that gives a man same level of utility.
Indifference curves are convex to the origin: This characteristic of indifference curves is a result of diminishing marginal rate of substitution. Another assumption is that preferences are consistent. He is not aware of his indifference map. This gives the conclusion that as the consumer travels down the indifference curve, the marginal significance of x has become greater as the respective angles of tangents are greater. In the figure 7, the indifference curve is concave to the origin. Hicks who popularised the theory. In words, the utility of x is never equal to the utility of y.
Diminishing marginal rate of substitution: Indifference curve analysis assumes diminishing marginal rate of substitution. It has retained the same assumption of utility analysis as propounded by Marshall. There are four important properties of indifference curves that describe most of them: 1 Indifference curves are downward sloping, 2 higher indifference curves are preferred to lower ones, 3 indifference curves cannot intersect, and 4 indifference curves are convex i. That means that all points on y have the same utility. Hick, Pareto and other economists have pointed out that utility is a subjective and psychological concept which cannot be measured in cardinal numbers like 1, 2 and 3.
Consumer preferences might also change between two different points in time, rendering specific indifference curves practically useless. There are alsoinstances where there is 0 slope or infinite slope if the quantityof a good is irrelevant to your enjoyment of it, like air. In other words, if they have a lot of good B, they are more willing to trade some of it in to get an additional unit of good A and vice versa. Such curves are in contradiction to the assumption that the consumer buys two goods in combinations. In combination T, the sacrifice falls to 2 bananas for 1 apple. It has been criticised on various grounds as given below: 1 Based on Unrealistic Model of Two Goods: The indifference curve analysis is based on two commodity model. Marshallian model is based on single commodity model but in practice a consumer has to consume a variety of goods for the satisfaction of various wants, namely, necessaries, comforts and luxuries.