krishnanand Pandey on LinkedIn: CHARACTERISTICS OF INDIFFERENCE CURVE Part-2 Krishna sir #Economics

However, indifference cannot be found on any other point than the curve on the graph. If the indifference curve is upward sloping like IJ, the consumer will get more satisfaction from combination A than B and C. If the indifference curve is downward sloping, the consumer will get equal Satisfaction from A as well as B combinations.

In the case of concave curve, it will lead to increasing marginal rate of substitution which is impossible. Another characteristic feature of indifference curve is that it will not touch the X axis or Y axis. This is born out of our assumption that the consumer is considering different combinations of two commodities.

Preference and Indifference Curves

Moreover, the slope of the budget line subtracted by relative price represents the opportunity cost of consumption. There is an opportunity cost because of the consumer’s limited budget. The budget line is shifted outwards by the price of goods becoming proportionally cheaper.

The loss of satisfaction to the consumer on account of the downward movement must be made up by the gain through the rightward movement. It all depends on the marginal rate of substitution on two curves shown in the indifference map. If the marginal characteristic of indifference curve rate of substitution of different points on two curves diminishes at a constant rate, then these curves will be parallel to each other, otherwise, they will not be parallel. Consequently, A combination yields more satisfaction than C combination.

1 Fundamental Assumptions about Individual Preferences

To keep things simple, we will focus only on goods, but it is easy to incorporate bads into the same framework by considering their absence—the fewer the bads, the better. On the horizontal axis we measure “x” axis the vertical axis we measure good “y”. At first point, we purchase 20 units of goods “y” and none of good “x”.

• All points or bundles on an indifference curve that gives the same level of satisfaction to the consumer are known as Indifference Set.
• One cannot put a numerical value on the level of satisfaction gained from the consumption of goods.
• In the case of concave curve, it will lead to increasing marginal rate of substitution which is impossible.
• In essence, MRS measures how many units of one good a consumer is willing to give up to obtain an additional unit of another good, while still remaining indifferent.

However, there are two extreme scenarios for the shape of an indifference curve. A pair of items in different amounts that gives a person equal satisfaction is represented by an IC. The features of IC are that IC cannot intersect, IC always shows slope in a downward direction  and the curve is always convex.

Indifference Curve Formula

We do not propose to
add to the stock of counter-examples here but to suggest a rather general consideration undermining any presumption that commodity indifference curves will
be convex-from-above. An indifference curve is defined as a curve that gives an equal level of satisfaction to a consumer at every possible combination. It is possible when a consumer is willing to sacrifice some quantity of a good to gain an additional unit of another good. If a consumer is having more of a good without any fall in another good, the consumer will achieve a higher satisfaction level instead of equal. This fall in units of one good to gain more of another good gives a downward slope to the indifference curve.

It is called a Cobb-Douglas function after the two people who introduced it into economics. Since both grade and free time are goods—Alexei would like to have as much of each as possible—the utility function must have the property that increasing either t or y would increase U. The number of units of one good a consumer is willing to give up to get one more unit of another good and maintain the same level of satisfaction. If bundle [latex]A[/latex] represents more of at least one good and no less of any other good than bundle [latex]B[/latex], then [latex]A[/latex] is preferred to [latex]B[/latex].

Indifference curve

An indifference curve is convex to the origin because of the application of the principle of diminishing marginal rate of substitution. In order to get the same level of satisfaction, an individual consumer has to consume more of X commodity and he has to sacrifice more of y-commodity. Indifference curves are a fundamental concept in microeconomics, specifically in consumer choice theory.

Be that as it may, we shall argue here that the
basis of the indifference curve version of consumer theory is even weaker than is
often supposed. It is of course commonly acknowledged that the assumption that
indifference curves are convex-from-above is rather poorly motivated. A. J. Green’s indifference between two brown socks and two grey socks and his preference for either
of those bundles over one brown sock and one grey sock.