cd> ef of Y for be = de — fg of X. An indifference curve is a graphical representation of a combined products that gives similar kind of satisfaction to a consumer thereby making them indifferent.Every point on the indifference curve shows that an individual or a consumer is indifferent between the two products as â¦ But the rate o the slope may not necessarily be the same as shown in the following diagram: A curve that slopes downwards can have three possible steps: The shape of the curve is determined by the rate of substitution between the two commodities. The line running through the equilibrium point is known as the income-consumption curve, which illustrates the income effects on consumersâ equilibrium. This set of combinations can be shown geometrically with the help of a straight line is drawn in fig this line is called the budget line. Completeness: 2. (7) An important property of indifference curves is that they are convex to the origin. 7.11 "Indifference Curves" shows indifference curves drawn through each of the points we have discussed. It tries to solve how does a consumer reaches the equilibrium point without measuring the utility in Cardinal numbers. Any number of combinations of the commodities X and Y located on an indifference curve will show a similar level of satisfaction to the consumer. More is Better. The curve will be a convex one if the marginal rate of substitution diminishes; the concavity will obtain if the marginal rate of substitution Rises; and the constant marginal rate of substitution will give us a straight line curve. A set of indifference curves is called âan Indifference mapâ. Figure 10 (C) shows the indifference curve as convex to the origin. Indifference Curve Analysis and the Demand Curve: Indifference curve analysis can be used to show why the demand curve usually slopes down. Consumers equilibrium by shifting to the right indicating that the consumer will reach a high level of satisfaction. Notify me of follow-up comments by email. The point where the budget line is tangent to one of the Indifference curves will determine the consumerâs equilibrium. Indifference curves are upward-sloping. The explanation of why the Indifference Curve slopes downwards, is convex to the origin, and that two Indifference Curves do not intersect each other. The higher the indifference, the higher utility compared to indifference curves below it. But point C which lies on both the curves yields the same level of satisfaction as points A and B. Privacy Policy 8. If it touches X-axis as 7, in Figure 9 at M, the consumer will be having OM quantity of good X and none of Y. This assumption is termed as properties of indifference curves. B.Indifference curve is downward sloping. In this video you will learn Properties of Indifference Curve theory. As already stated earlier, the technique of the indifference curve has been developed as an alternative to Marshallian utility analysis to provide a logical explanation of the consumerâs equilibrium position. 7 The Indifference Curves 3 d) Indifference curves never intersect each other (Figure 4) In Figure 4, A, B, and C are combinations of sodas and cookies. Consequently, the indifference curve will be of negative slope as shown in Figure 7 (D) where A and B combinations give equal satisfaction to the consumer. Ace up your preparation with the Objective Questions available on Indifference Curve and enhance your subject knowledge. What will happen if the consumerâs income remains unchanged at \$30, but the price of grapes falls to (1) \$5 per kg and (2) \$4 per kg?. 9 Advanced Strategies for Building Maximum Customer Satisfaction, 28 Important Functions of Sales Promotion (With Examples), 27 Positive Effects of Globalization (You Donât Know), 8 Major Types of Decision Making (Business Management), Top 18 Methods or Techniques of Motivating Creativity, Top 25 Major Reasons Why People Resist Change, 10 Techniques of Building Support for Organizational Change, 9 Methods of Measuring Employee Morale in Organization, 12 Key Factors that Affecting Employee Morale in Organization, 18 Ways to Build Up Employee Morale in Workplace, 22 Key Advantages and Disadvantages of Privatization, 12 Methods to Correct Disequilibrium in Balance of Payments (BOP) â Step-by-Step, 19 Essential Elements of Good and Effective Planning, 17 Major Problems of Public Sector in Economy, 10 Difference and Similarity between Innovation and Creativity, 18 Major Advantages and Disadvantages of Supermarkets, 11 Advantages and Disadvantages of Functional Organizational Structure, 10 Objectives of Entrepreneurial Development Programmes, 14 Principles of Planning in Management (With Examples), How to Become a Successful Salesman? This â¦ A Higher Difference Curve Shows a Higher Level of Satisfaction, Another characteristic of the indifference curve is that hire the indifference curve higher will be the. The consumer is indifferent between bundle L and bundle M. Assume that the consumer's preferences satisfy the four properties of indifference curves. This is so because indifference curves are assumed to be negatively sloping and convex to the origin. In the case of those complementary goods which are jointly demanded like bread and butter, shoes and socks. In other words, the indifference curve is the graphical representation of different combinations of goods (generally two), for which the consumers are indifferent, in terms of the overall satisfaction and the utility. For the general model of utility functions and indifference maps developed in class, explain why no two indifference curves can ever cross each other. What are the three properties of indifference curves for two goods? Your answer must explain the economic logic here, and may also include appropriate equations and/or graphs. The same reasoning applies if two indifference curves touch each other at point С in Panel (B) of the figure. Since the price of Apple has not changed, the consumer can purchase at the extreme 6 kg. The two curves I1and I2 shown in figure 11 are not parallel to each other. The curve that joins the various equilibrium points is known as the, Characteristics of the Indifference Curve. As he moves from combination A to B he gives up less quantity of Y in order to have more of X. Perfect Complementary Goods have L-Shaped Indifference Curves. An indifference map, is collection of indifference curves corresponding to different levels of satisfaction. Points S and R also lie on the budget line. Image Guidelines 5. The convexity rule implies that as the consumer substitutes X for Y the marginal rate of substitution diminishes. On the line â¦ given to indifference curves are absolutely arbitrary. Indifference Curves always Slope Downwards from Left to Right. Another characteristic feature of indifference curve is that â¦ Thus an indifference curve â¦ Learning Objective 1.3: Relate the properties of indifference curves to assumptions about preference. It has been so and diagrams were IC, ICI1, IC2 and IC3 indifference curve so different levels of satisfaction from the point of the level of satisfaction. We have tried to make it clear in very simple words. I.e.. A position in which the consumer reaches the highest level of satisfaction, Given his money income and the prices of the two commodities. Indifference Curves are Not Necessarily Parallel to Each Other. All Combinations on an Indifference Curve Give Same Level of Satisfaction, 2. The following are those properties: Indifference curves are infinite. â¢ An indifference curve is convex to the origin, reflecting the principle of diminishing marginal utility. In other words, the dimin­ishing marginal rate of substitution between the two goods is essentially not the same in the case of all indifference schedules. Indifference curve is a curve showing different combinations of two goods, each combination offering the same level of satisfaction to the consumer. The curve of the price effect on consumer equilibrium. A lower curve, On the other hand, will measure lesser quantities and hence the lesser level of satisfaction. An Indifference map shows the different scales of preference of the consumer. Secondly, at the point of consumer equilibrium indifference curve should be convex; it should not be concave. Hence, the Indifference curves are always convex towards the point of origin. The various combinations that provide equal satisfaction to the consumer are grouped into two sets.eval(ez_write_tag([[336,280],'googlesir_com-large-mobile-banner-2','ezslot_5',111,'0','0'])); What will happen if the consumerâs income increases to (1) \$45 (2) \$60 (3) \$ 75? (4) The slope of an indifference curve is negative, downward sloping, and from left to right. A consumer is indifferent towards different combinations located on such a curve. The consumerâs equilibrium also shifts to the right. (9) In reality indifference curves are like bangles. An Indifference Curve Neither Touches Horizontal Axis Nor Vertical Axis. A consumer would be indifferent towards the different combinations on the same scale of preference because these different combinations would get him equal satisfaction, and there will be no point for him to prefer one combination to another on the same scale of preference. This means that if we consider two bundles of goods (x 1, x 2) and (y 1, y 2) or the same indifference curve and take a weighted average of the two bundles such as: If the two indifference curves, IC 1 and IC 2, represent different amounts of satisfaction, then, on curve IC 1 (65 utils), the satisfaction one gets with combination A will be equal to that TOS 7. Plagiarism Prevention 4. Any numbers can be given to indifference curves. The second important assumption about well-behaved indifference curves is that averages are preferred to extremes. (3) The numbers I1, I2, I3, I4,………… etc. First, the budget line should be tangent to the indifference curve in more technical terms, the slope of the budget line should equal the slope of the indifference curve. As we know that all indifference curve slope downward to right or they have negative slopes. Indifference Curve Neither Touches Horizontal or Vertical Axis, 6. Properties of an Indifference Curve or IC. An individual can move to higher indifference curves I1and I2 until he reaches the saturation point 5 where his total utility is the maxi­mum. Even if the two points on these curves are on the same plane as M and A, the consumer will prefer the latter combination, because he will be having more of good X though the quantity of good Y is the same. Indifference Curves Cannot Intersect. Such a map has been drawn in Fig. A budget line represents all those combinations of the two commodities that the consumer can purchase, given his money income and the prices of the two commodities. To prove this property, let us take indifference curves contrary to this assumption. Related: 8 Major Types of Decision Making (Business Management). (Delhi 2012) Ans. Before publishing your articles on this site, please read the following pages: 1. In most cases, the consumer likes both goods. If a â« b and b â« c, then a â« c Utility â¢ Can we always represent preferences via a happiness function? But as a matter of principle their ‘effective region’ in the form of segments is shown in Figure 12. eval(ez_write_tag([[250,250],'googlesir_com-large-mobile-banner-1','ezslot_1',123,'0','0']));Related: 9 Advanced Strategies for Building Maximum Customer Satisfaction. They can be put in the order of preference like IC3>IC2>IC1>IC respectively.eval(ez_write_tag([[250,250],'googlesir_com-box-4','ezslot_15',120,'0','0'])); An Indifference curve is definite as a curve on which all the combinations of two commodities give a consumer equal satisfaction. 2. Enter your email below to get access to Our All helpful Tips and Articles. A higher curve measure greater quantities of both the commodities and Hence the highest level of satisfaction. Nine most important properties of indifference curves are as follows: (1) A higher indifference curves to the right of another represents a higher level of satisfaction and preferable combination of the two goods. Related: Top 18 Methods or Techniques of Motivating Creativity. If we take a straight line indifference curve at an angle of 45° with either axis, the marginal rate of substitution between the two goods will be constant, as in Panel (B) where ab of Y = be of X and cd of Y = de of X. Required fields are marked *. Similarly, in Figure 7 (B) combination B is preferable to combination A for combination B has more of X and the same quantity of Y. If the consumer increases his consumption more than OX or OY, his total utility will fall. 33 Qualities (Complete List), 17 Role and Importance of Small Scale Industries, 19 Role And Importance Of Managerial Economics, 13 Types of Online Advertising Techniques. Though they are falling, negatively inclined to the right, yet the rate of fall will not be the same for all indifference curves. The top part of Figure 4.13 is a conventional indifference curve diagram. Point A on the I1 curve indicates a higher level of satisfaction than point B on the I2 curve, as it lies farther away from the origin. Prohibited Content 3. Point T lies beyond his income range and hence is not feasible. It means that as the amount X is increased by equal amounts that of Y diminish by smaller amounts. The indifference curve is a boundary line: to the right of the line we have a set of points which are preferred to the set up points to the left of the line. However, the fact is that you can draw an infinite number of indifference curves between two indifference curves. Bundle M contains 8 units of good X and 21 units of good Y. 1.3 Properties of Indifference Curves. (8) Indifference curves are not necessarily parallel to each other. Indifference Curve is Always Convex Towards Point of Origin, 19 Factors Influencing Entrepreneurship Development, 6 Different Stages or Phases for Preparation of New Projects. So the indifference curve cannot be horizontal. The reasoning behind this assumption is that: (1) Each indifference curve represents a different level of satisfaction and. Updated on: August 2, 2020 Leave a Comment. Another characteristic of the indifference curve is that an indifference curve does not touch the x-axis. D.Two indifference curves cannot intersect each â¦ Report a Violation, Applications of Indifference Curve Analysis | Managerial Economics, Indifference Curves: Assumptions and Properties | Economics, The Indifference Curve Approach | Managerial Economics. MCQ Questions on Indifference Curve: Below, You will find a list of Commerce MCQ Questions as per the latest prescribed syllabus. QN=576 (17715) Bundle L contains 10 units of good X and 20 units of good Y. The various combinations that provide equal satisfaction to the consumer are grouped into two sets. 3. Downward Sloping: An indifference curve slope downward, which means, that with the more consumption of one good the consumption of the other is to be reduced to maintain the utility.Here, the principle of the marginal rate of substitution (MRS) applies, which means the increased consumption of one commodity is to be set off by the reduced â¦ In Figure 6, consider the indifference curves I1 and I2 and combination N and A respectively on them. If we assume that we know the prices of two commodities we can list down a number of comparisons combinations of two commodities that the consumer can actually buy in the market. of apples and 2.5 kg. Thus, In other words, an indifference curve is a curve on which all the combinations of two commodities give a consumer equal satisfaction. The concept of indifference curve analysis was first propounded by British economist Francis Ysidro Edgeworth and was put into use by Italian economist Vilfredo Pareto during the early 20 th century. Calcium Phosphate Generic Name, Cobra Tec Knives, Friends Inspired Decor, Samsung Flexwash Dryer Manual, Weather Ely Mn Radar, Azure Devops Project Management Tutorial Pdf, Nubian Heritage Shea Butter And Aloe Vera Body Wash, Klean Strip Paint Thinner Vs Mineral Spirits, "/> 7 properties of indifference curve cd> ef of Y for be = de — fg of X. An indifference curve is a graphical representation of a combined products that gives similar kind of satisfaction to a consumer thereby making them indifferent.Every point on the indifference curve shows that an individual or a consumer is indifferent between the two products as â¦ But the rate o the slope may not necessarily be the same as shown in the following diagram: A curve that slopes downwards can have three possible steps: The shape of the curve is determined by the rate of substitution between the two commodities. The line running through the equilibrium point is known as the income-consumption curve, which illustrates the income effects on consumersâ equilibrium. This set of combinations can be shown geometrically with the help of a straight line is drawn in fig this line is called the budget line. Completeness: 2. (7) An important property of indifference curves is that they are convex to the origin. 7.11 "Indifference Curves" shows indifference curves drawn through each of the points we have discussed. It tries to solve how does a consumer reaches the equilibrium point without measuring the utility in Cardinal numbers. Any number of combinations of the commodities X and Y located on an indifference curve will show a similar level of satisfaction to the consumer. More is Better. The curve will be a convex one if the marginal rate of substitution diminishes; the concavity will obtain if the marginal rate of substitution Rises; and the constant marginal rate of substitution will give us a straight line curve. A set of indifference curves is called âan Indifference mapâ. Figure 10 (C) shows the indifference curve as convex to the origin. Indifference Curve Analysis and the Demand Curve: Indifference curve analysis can be used to show why the demand curve usually slopes down. Consumers equilibrium by shifting to the right indicating that the consumer will reach a high level of satisfaction. Notify me of follow-up comments by email. The point where the budget line is tangent to one of the Indifference curves will determine the consumerâs equilibrium. Indifference curves are upward-sloping. The explanation of why the Indifference Curve slopes downwards, is convex to the origin, and that two Indifference Curves do not intersect each other. The higher the indifference, the higher utility compared to indifference curves below it. But point C which lies on both the curves yields the same level of satisfaction as points A and B. Privacy Policy 8. If it touches X-axis as 7, in Figure 9 at M, the consumer will be having OM quantity of good X and none of Y. This assumption is termed as properties of indifference curves. B.Indifference curve is downward sloping. In this video you will learn Properties of Indifference Curve theory. As already stated earlier, the technique of the indifference curve has been developed as an alternative to Marshallian utility analysis to provide a logical explanation of the consumerâs equilibrium position. 7 The Indifference Curves 3 d) Indifference curves never intersect each other (Figure 4) In Figure 4, A, B, and C are combinations of sodas and cookies. Consequently, the indifference curve will be of negative slope as shown in Figure 7 (D) where A and B combinations give equal satisfaction to the consumer. Ace up your preparation with the Objective Questions available on Indifference Curve and enhance your subject knowledge. What will happen if the consumerâs income remains unchanged at \$30, but the price of grapes falls to (1) \$5 per kg and (2) \$4 per kg?. 9 Advanced Strategies for Building Maximum Customer Satisfaction, 28 Important Functions of Sales Promotion (With Examples), 27 Positive Effects of Globalization (You Donât Know), 8 Major Types of Decision Making (Business Management), Top 18 Methods or Techniques of Motivating Creativity, Top 25 Major Reasons Why People Resist Change, 10 Techniques of Building Support for Organizational Change, 9 Methods of Measuring Employee Morale in Organization, 12 Key Factors that Affecting Employee Morale in Organization, 18 Ways to Build Up Employee Morale in Workplace, 22 Key Advantages and Disadvantages of Privatization, 12 Methods to Correct Disequilibrium in Balance of Payments (BOP) â Step-by-Step, 19 Essential Elements of Good and Effective Planning, 17 Major Problems of Public Sector in Economy, 10 Difference and Similarity between Innovation and Creativity, 18 Major Advantages and Disadvantages of Supermarkets, 11 Advantages and Disadvantages of Functional Organizational Structure, 10 Objectives of Entrepreneurial Development Programmes, 14 Principles of Planning in Management (With Examples), How to Become a Successful Salesman? This â¦ A Higher Difference Curve Shows a Higher Level of Satisfaction, Another characteristic of the indifference curve is that hire the indifference curve higher will be the. The consumer is indifferent between bundle L and bundle M. Assume that the consumer's preferences satisfy the four properties of indifference curves. This is so because indifference curves are assumed to be negatively sloping and convex to the origin. In the case of those complementary goods which are jointly demanded like bread and butter, shoes and socks. In other words, the indifference curve is the graphical representation of different combinations of goods (generally two), for which the consumers are indifferent, in terms of the overall satisfaction and the utility. For the general model of utility functions and indifference maps developed in class, explain why no two indifference curves can ever cross each other. What are the three properties of indifference curves for two goods? Your answer must explain the economic logic here, and may also include appropriate equations and/or graphs. The same reasoning applies if two indifference curves touch each other at point С in Panel (B) of the figure. Since the price of Apple has not changed, the consumer can purchase at the extreme 6 kg. The two curves I1and I2 shown in figure 11 are not parallel to each other. The curve that joins the various equilibrium points is known as the, Characteristics of the Indifference Curve. As he moves from combination A to B he gives up less quantity of Y in order to have more of X. Perfect Complementary Goods have L-Shaped Indifference Curves. An indifference map, is collection of indifference curves corresponding to different levels of satisfaction. Points S and R also lie on the budget line. Image Guidelines 5. The convexity rule implies that as the consumer substitutes X for Y the marginal rate of substitution diminishes. On the line â¦ given to indifference curves are absolutely arbitrary. Indifference Curves always Slope Downwards from Left to Right. Another characteristic feature of indifference curve is that â¦ Thus an indifference curve â¦ Learning Objective 1.3: Relate the properties of indifference curves to assumptions about preference. It has been so and diagrams were IC, ICI1, IC2 and IC3 indifference curve so different levels of satisfaction from the point of the level of satisfaction. We have tried to make it clear in very simple words. I.e.. A position in which the consumer reaches the highest level of satisfaction, Given his money income and the prices of the two commodities. Indifference Curves are Not Necessarily Parallel to Each Other. All Combinations on an Indifference Curve Give Same Level of Satisfaction, 2. The following are those properties: Indifference curves are infinite. â¢ An indifference curve is convex to the origin, reflecting the principle of diminishing marginal utility. In other words, the dimin­ishing marginal rate of substitution between the two goods is essentially not the same in the case of all indifference schedules. Indifference curve is a curve showing different combinations of two goods, each combination offering the same level of satisfaction to the consumer. The curve of the price effect on consumer equilibrium. A lower curve, On the other hand, will measure lesser quantities and hence the lesser level of satisfaction. An Indifference map shows the different scales of preference of the consumer. Secondly, at the point of consumer equilibrium indifference curve should be convex; it should not be concave. Hence, the Indifference curves are always convex towards the point of origin. The various combinations that provide equal satisfaction to the consumer are grouped into two sets.eval(ez_write_tag([[336,280],'googlesir_com-large-mobile-banner-2','ezslot_5',111,'0','0'])); What will happen if the consumerâs income increases to (1) \$45 (2) \$60 (3) \$ 75? (4) The slope of an indifference curve is negative, downward sloping, and from left to right. A consumer is indifferent towards different combinations located on such a curve. The consumerâs equilibrium also shifts to the right. (9) In reality indifference curves are like bangles. An Indifference Curve Neither Touches Horizontal Axis Nor Vertical Axis. A consumer would be indifferent towards the different combinations on the same scale of preference because these different combinations would get him equal satisfaction, and there will be no point for him to prefer one combination to another on the same scale of preference. This means that if we consider two bundles of goods (x 1, x 2) and (y 1, y 2) or the same indifference curve and take a weighted average of the two bundles such as: If the two indifference curves, IC 1 and IC 2, represent different amounts of satisfaction, then, on curve IC 1 (65 utils), the satisfaction one gets with combination A will be equal to that TOS 7. Plagiarism Prevention 4. Any numbers can be given to indifference curves. The second important assumption about well-behaved indifference curves is that averages are preferred to extremes. (3) The numbers I1, I2, I3, I4,………… etc. First, the budget line should be tangent to the indifference curve in more technical terms, the slope of the budget line should equal the slope of the indifference curve. As we know that all indifference curve slope downward to right or they have negative slopes. Indifference Curve Neither Touches Horizontal or Vertical Axis, 6. Properties of an Indifference Curve or IC. An individual can move to higher indifference curves I1and I2 until he reaches the saturation point 5 where his total utility is the maxi­mum. Even if the two points on these curves are on the same plane as M and A, the consumer will prefer the latter combination, because he will be having more of good X though the quantity of good Y is the same. Indifference Curves Cannot Intersect. Such a map has been drawn in Fig. A budget line represents all those combinations of the two commodities that the consumer can purchase, given his money income and the prices of the two commodities. To prove this property, let us take indifference curves contrary to this assumption. Related: 8 Major Types of Decision Making (Business Management). (Delhi 2012) Ans. Before publishing your articles on this site, please read the following pages: 1. In most cases, the consumer likes both goods. If a â« b and b â« c, then a â« c Utility â¢ Can we always represent preferences via a happiness function? But as a matter of principle their ‘effective region’ in the form of segments is shown in Figure 12. eval(ez_write_tag([[250,250],'googlesir_com-large-mobile-banner-1','ezslot_1',123,'0','0']));Related: 9 Advanced Strategies for Building Maximum Customer Satisfaction. They can be put in the order of preference like IC3>IC2>IC1>IC respectively.eval(ez_write_tag([[250,250],'googlesir_com-box-4','ezslot_15',120,'0','0'])); An Indifference curve is definite as a curve on which all the combinations of two commodities give a consumer equal satisfaction. 2. Enter your email below to get access to Our All helpful Tips and Articles. A higher curve measure greater quantities of both the commodities and Hence the highest level of satisfaction. Nine most important properties of indifference curves are as follows: (1) A higher indifference curves to the right of another represents a higher level of satisfaction and preferable combination of the two goods. Related: Top 18 Methods or Techniques of Motivating Creativity. If we take a straight line indifference curve at an angle of 45° with either axis, the marginal rate of substitution between the two goods will be constant, as in Panel (B) where ab of Y = be of X and cd of Y = de of X. Required fields are marked *. Similarly, in Figure 7 (B) combination B is preferable to combination A for combination B has more of X and the same quantity of Y. If the consumer increases his consumption more than OX or OY, his total utility will fall. 33 Qualities (Complete List), 17 Role and Importance of Small Scale Industries, 19 Role And Importance Of Managerial Economics, 13 Types of Online Advertising Techniques. Though they are falling, negatively inclined to the right, yet the rate of fall will not be the same for all indifference curves. The top part of Figure 4.13 is a conventional indifference curve diagram. Point A on the I1 curve indicates a higher level of satisfaction than point B on the I2 curve, as it lies farther away from the origin. Prohibited Content 3. Point T lies beyond his income range and hence is not feasible. It means that as the amount X is increased by equal amounts that of Y diminish by smaller amounts. The indifference curve is a boundary line: to the right of the line we have a set of points which are preferred to the set up points to the left of the line. However, the fact is that you can draw an infinite number of indifference curves between two indifference curves. Bundle M contains 8 units of good X and 21 units of good Y. 1.3 Properties of Indifference Curves. (8) Indifference curves are not necessarily parallel to each other. Indifference Curve is Always Convex Towards Point of Origin, 19 Factors Influencing Entrepreneurship Development, 6 Different Stages or Phases for Preparation of New Projects. So the indifference curve cannot be horizontal. The reasoning behind this assumption is that: (1) Each indifference curve represents a different level of satisfaction and. Updated on: August 2, 2020 Leave a Comment. Another characteristic of the indifference curve is that an indifference curve does not touch the x-axis. D.Two indifference curves cannot intersect each â¦ Report a Violation, Applications of Indifference Curve Analysis | Managerial Economics, Indifference Curves: Assumptions and Properties | Economics, The Indifference Curve Approach | Managerial Economics. MCQ Questions on Indifference Curve: Below, You will find a list of Commerce MCQ Questions as per the latest prescribed syllabus. QN=576 (17715) Bundle L contains 10 units of good X and 20 units of good Y. The various combinations that provide equal satisfaction to the consumer are grouped into two sets. 3. Downward Sloping: An indifference curve slope downward, which means, that with the more consumption of one good the consumption of the other is to be reduced to maintain the utility.Here, the principle of the marginal rate of substitution (MRS) applies, which means the increased consumption of one commodity is to be set off by the reduced â¦ In Figure 6, consider the indifference curves I1 and I2 and combination N and A respectively on them. If we assume that we know the prices of two commodities we can list down a number of comparisons combinations of two commodities that the consumer can actually buy in the market. of apples and 2.5 kg. Thus, In other words, an indifference curve is a curve on which all the combinations of two commodities give a consumer equal satisfaction. The concept of indifference curve analysis was first propounded by British economist Francis Ysidro Edgeworth and was put into use by Italian economist Vilfredo Pareto during the early 20 th century. 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# 7 properties of indifference curve ###### Curso de MS-Excel 365 – Módulo Intensivo
13 de novembro de 2020

Similarly, if an in difference curve I2touches the У-axis at L the consumer will have only OL of Y good and no amount of X. But then these points lie on a lower indifference curve marked IC1: Therefore, the consumerâs equilibrium is established at, With the help of the available information, we can draw, Macroeconomics: Definitions, Features, Scope, Importance (Step-by-Step), 18 Nature and Characteristics of Entrepreneurship, Demand Forecasting: Meaning, Objectives, Features, Need & Limitations, 12 Theories of Entrepreneurship (Explained with Examples), 14 Factors Affecting Economic Environment of business, 23 Key Benefits and Importance of Establishing Sales Territory (With Examples), How to Select a Suitable Marketing Strategy for Market Segmentation, Theory X and Theory Y of Motivation (Explain with Examples). Content Filtrations 6. Using indifference curve analysis, the consumer optimum occurs. What absurdity follows from such a situation can be shown with the help of Figure 8 (A) where the two curves I1and I2 cut each other. Therefore, the indifference curve cannot slope upward from left to right. Each point on an indifference curve indicates that a consumer is indifferent between the two and all points give him the same utility. If the indifference curve touches the vertical line(OY-axis) then he will consume a very large quantity of commodity Y while zero quantity of commodity-X. Such curves are in contradiction to the as­sumption that the consumer buys two goods in combinations. convex to the origin. In Figure 7 (A) combination B of OX1 + OY1 is preferable to combination A which has a smaller amount of the two goods. Since A is on a higher indifference curve and to the right of N, the consumer will be having more of both the goods X and Y that is, OX1 + OY1 in relation to OX + OY. So that the consumer is indifferent, between all set of bundles. Your email address will not be published. (2) Each point on an indifference curve gives a level of equal satisfaction. The scale of preferences implies that a consumer can conveniently arrange the various combinations of two or more goods available to him in order of his preferences. Thus, now you know the properties of indifference curve with diagram. Indifference curves are. The consumer has to reach the highest possible scale of reference. As introduced in Section 1.2, indifference curves have three key properties: they are downward sloping; they do not cross; they are bowed in (a non-technical way of saying they are convex to the origin). As in Figure 10 (A) the consumer is giving up ab< cd< ef units of Y for be = de =fg units of X. Thus, the consumer can reach the highest scale of preference marked as IC2 and an establish equilibrium at the point P where the consumes OM of commodity X and ON of commodity Y. The slope of an indifference curve reflects the rate at which the consumer is willing to substitute one good for the other. Higher Indifference Curve Represents Higher Level: A higher indifference curve that lies above and â¦ Thus an indifference curve cannot be a straight line. If a consumer could have more of one commodity without a corresponding fail in other commodities he would have achieved a higher level of satisfaction.eval(ez_write_tag([[580,400],'googlesir_com-leader-2','ezslot_6',107,'0','0'])); Plotting on a graph the different combinations that contain more of one commodity and less of another would give a downward-sloping curve. As a result of an increase in the consumerâs income, The budget lines will shift right words. Correspondingly, the equilibrium point will also shift the right words as shown in the following figure. If to compensate himself for this loss of utility, he increases the consumption of Y, he may be again on the dotted portion of the curve, vertically from point S to M. Thus the consumer may be on the concave portion of the circular curve. Since grapes have gone cheaper, the consumer would like to purchase more of grapes in place of apples. Definition: An indifference curve is a graph showing combination of two goods that give the consumer equal satisfaction and utility. Copyright 10. Indifference Curves Never Cut Each Other, 5. This preview shows page 7 - 13 out of 22 pages.. 2/9/15 7 Properties 1. It is the locus of the point representing pairs of quantities in between which the individual is indifferent so it is termed as indifference curve. We can make certain realistic assumptions about the shape of the Indifference curves. Following are the different examples of indifference curves: Our imaginary consumer has \$30 to spend on grapes and Apple. It is not an iso-utility curve. (2) In between two indifference curves there can be a number of other indifference curves, one for every point in the space on the diagram. Equilibrium is established at point E on IC2 in fig. Convexity of the curve implies the dimension marginal rate of substitution(MRS). The concept of the scale of differences forms the basis of the indifference curve analysis. But since grapes have become cheaper, he can purchase at the extreme 6 kg (when the price is \$5 per kg) or 7.5 kg. If a consumer could have more of one commodity without a corresponding fail in other commodities he would have achieved a higher level of satisfaction. Which of the following violates the properties of indifference curves? Hence, no point On two different indifference curves can be common to each; The two curves will have to be perfectly independent of each other. Thus. Two indifference curves canât cross. It implies that its slope is negative. Content Guidelines 2. eval(ez_write_tag([[300,250],'googlesir_com-medrectangle-3','ezslot_10',121,'0','0']));Indifference curve technique was invented by British economist Edge Worth but credit goes to RGD Allex and J.R. Hicks to popularise this technique. Thus an indifference curve is always convex to the origin because the marginal rate of substitution between the two goods declines. The consumer will purchase 3 kg. Since each indifference curve represents a different level of satisfaction, indifference curves can never inter­sect at any point. Understand the concept clearly by consistently practicing the Multiple Choice Questions and score well in your exams. Plotting on a graph the different combinations that contain more of one commodity and less of another would give a, 4. 6.Define an indifference curve, Explain why an indifference curve is downward sloping from left to right. However, it was brought into extensive use by economists J.R. Hicks and R.G.D Allen. Thus, Indifference curve analysis seeks to remedy this shortcoming of utility analysis. If we take a straight line indifference curve at an angle of 45° with either axis, the marginal rate of substitution between the two goods will be constant, as in Panel (B) where ab of Y = be of X and cd of Y = de of X. A higher indifference curve represents a higher level of satisfaction than a lower indifference curve: â¦ Indifference curve A from Figure 7.10 "An Indifference Curve" is inferior to indifference curve B. Ms. Bain prefers all the combinations on indifference curve B to those on curve A, and she regards each of the combinations But the indifference curve cannot be concave to the origin. C.Indifference curve is concave to origin. A graph of indifference curves for several utility levels of an individual consumer is called an indifference map. The Problem of Rationing: The indifference curve technique is used to explain the problem arising â¦ This slope signifies that when the quantity of one commodity in combination is increased, the amount of the other commodity reduces. The different combinations of two goods on the scale of preferences would get the consumer equal satisfaction. must be negative. But the rate o the slope may not necessarily be the same as shown in the following diagram: properties of indifference curve with diagram 8. Here are the properties of an indifference curve: An IC slopes downwards to the right. The curve that joins the various equilibrium points is known as the price consumption curve. This is absurd because A is preferred to B, begin on a higher indifference curve I1. But the indifference curve cannot be concave to the origin. To understand why this is â¦ (when the price is \$4 per kg). For example, IC3 has a higher utility than IC2 and IC2 has a higher utility than IC1. â¢ Property 2: Indifference curves are downward sloping. But then these points lie on a lower indifference curve marked IC1: Hence, the consumer will prefer combination P to S and R. The consumer would definitely prefer to have a combination on Point T, provident he can purchase it. 4.Which of the following is not the property of indifference curve: A.Higher the indifference curves higher the level of satisfaction. It follows that if a consumer wants to have more quantity of commodity X, he will have to give up some quantity of commodity Y in order to derive the same level of satisfaction. To do this, we will analyse one commo­dity, beer, and assume that consumer income and the price of all other goods remains constant. Grapes are priced at \$6 per kg whereas apples are priced at \$5 per kg. Properties of Indifference Curve . In Figure 7 (C) the indifference curve is shown as vertical and again combination B is preferred to A as the consumer has more of Y and the same quantity of X. The slope of the curve becomes smaller as we move to the right. i.e., where a consumer would prefer to choose a combination on one scale of preference to some other combination on another scale of preference, he will show indifference towards the different combinations on the same scale of reference. 7. The slope of an indifference curve. IC slopes downward: It slopes downward from left to right. Related: 27 Positive Effects of Globalization (You Donât Know). Related: 28 Important Functions of Sales Promotion (With Examples). L-Shaped Indifference Curves 7. 7. Another characteristic of the indifference curve is that an indifference curve does not touch the x-axis.eval(ez_write_tag([[300,250],'googlesir_com-leader-3','ezslot_8',108,'0','0'])); If it does so it means he consumes the very large amount of commodity X and zero amount of commodity Y. eval(ez_write_tag([[250,250],'googlesir_com-mobile-leaderboard-1','ezslot_13',124,'0','0']));eval(ez_write_tag([[250,250],'googlesir_com-mobile-leaderboard-1','ezslot_14',124,'0','1']));If the indifference curve touches the vertical line(OY-axis) then he will consume a very large quantity of commodity Y while zero quantity of commodity-X. It means that the consumer to be indifferent to all the combinations on the indifference curves must leave less units of good Y in order to have more of good X. A set of indifference curves is called an indifference map. Indifference curve will not touch the axis. An Indifference Curve: Definition â¢ An indifference curve is a curve showing all the quantity mixes of two goods from which the consumer derives the same level of utility. Here the consumer is giving up less and less units of Y in order to have equal additional units of X, i.e., ab> cd> ef of Y for be = de — fg of X. An indifference curve is a graphical representation of a combined products that gives similar kind of satisfaction to a consumer thereby making them indifferent.Every point on the indifference curve shows that an individual or a consumer is indifferent between the two products as â¦ But the rate o the slope may not necessarily be the same as shown in the following diagram: A curve that slopes downwards can have three possible steps: The shape of the curve is determined by the rate of substitution between the two commodities. The line running through the equilibrium point is known as the income-consumption curve, which illustrates the income effects on consumersâ equilibrium. This set of combinations can be shown geometrically with the help of a straight line is drawn in fig this line is called the budget line. Completeness: 2. (7) An important property of indifference curves is that they are convex to the origin. 7.11 "Indifference Curves" shows indifference curves drawn through each of the points we have discussed. It tries to solve how does a consumer reaches the equilibrium point without measuring the utility in Cardinal numbers. Any number of combinations of the commodities X and Y located on an indifference curve will show a similar level of satisfaction to the consumer. More is Better. The curve will be a convex one if the marginal rate of substitution diminishes; the concavity will obtain if the marginal rate of substitution Rises; and the constant marginal rate of substitution will give us a straight line curve. A set of indifference curves is called âan Indifference mapâ. Figure 10 (C) shows the indifference curve as convex to the origin. Indifference Curve Analysis and the Demand Curve: Indifference curve analysis can be used to show why the demand curve usually slopes down. Consumers equilibrium by shifting to the right indicating that the consumer will reach a high level of satisfaction. Notify me of follow-up comments by email. The point where the budget line is tangent to one of the Indifference curves will determine the consumerâs equilibrium. Indifference curves are upward-sloping. The explanation of why the Indifference Curve slopes downwards, is convex to the origin, and that two Indifference Curves do not intersect each other. The higher the indifference, the higher utility compared to indifference curves below it. But point C which lies on both the curves yields the same level of satisfaction as points A and B. Privacy Policy 8. If it touches X-axis as 7, in Figure 9 at M, the consumer will be having OM quantity of good X and none of Y. This assumption is termed as properties of indifference curves. B.Indifference curve is downward sloping. In this video you will learn Properties of Indifference Curve theory. As already stated earlier, the technique of the indifference curve has been developed as an alternative to Marshallian utility analysis to provide a logical explanation of the consumerâs equilibrium position. 7 The Indifference Curves 3 d) Indifference curves never intersect each other (Figure 4) In Figure 4, A, B, and C are combinations of sodas and cookies. Consequently, the indifference curve will be of negative slope as shown in Figure 7 (D) where A and B combinations give equal satisfaction to the consumer. Ace up your preparation with the Objective Questions available on Indifference Curve and enhance your subject knowledge. 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This â¦ A Higher Difference Curve Shows a Higher Level of Satisfaction, Another characteristic of the indifference curve is that hire the indifference curve higher will be the. The consumer is indifferent between bundle L and bundle M. Assume that the consumer's preferences satisfy the four properties of indifference curves. This is so because indifference curves are assumed to be negatively sloping and convex to the origin. In the case of those complementary goods which are jointly demanded like bread and butter, shoes and socks. In other words, the indifference curve is the graphical representation of different combinations of goods (generally two), for which the consumers are indifferent, in terms of the overall satisfaction and the utility. For the general model of utility functions and indifference maps developed in class, explain why no two indifference curves can ever cross each other. What are the three properties of indifference curves for two goods? Your answer must explain the economic logic here, and may also include appropriate equations and/or graphs. The same reasoning applies if two indifference curves touch each other at point С in Panel (B) of the figure. Since the price of Apple has not changed, the consumer can purchase at the extreme 6 kg. The two curves I1and I2 shown in figure 11 are not parallel to each other. The curve that joins the various equilibrium points is known as the, Characteristics of the Indifference Curve. As he moves from combination A to B he gives up less quantity of Y in order to have more of X. Perfect Complementary Goods have L-Shaped Indifference Curves. An indifference map, is collection of indifference curves corresponding to different levels of satisfaction. Points S and R also lie on the budget line. Image Guidelines 5. The convexity rule implies that as the consumer substitutes X for Y the marginal rate of substitution diminishes. On the line â¦ given to indifference curves are absolutely arbitrary. Indifference Curves always Slope Downwards from Left to Right. Another characteristic feature of indifference curve is that â¦ Thus an indifference curve â¦ Learning Objective 1.3: Relate the properties of indifference curves to assumptions about preference. It has been so and diagrams were IC, ICI1, IC2 and IC3 indifference curve so different levels of satisfaction from the point of the level of satisfaction. We have tried to make it clear in very simple words. I.e.. A position in which the consumer reaches the highest level of satisfaction, Given his money income and the prices of the two commodities. Indifference Curves are Not Necessarily Parallel to Each Other. All Combinations on an Indifference Curve Give Same Level of Satisfaction, 2. The following are those properties: Indifference curves are infinite. â¢ An indifference curve is convex to the origin, reflecting the principle of diminishing marginal utility. In other words, the dimin­ishing marginal rate of substitution between the two goods is essentially not the same in the case of all indifference schedules. Indifference curve is a curve showing different combinations of two goods, each combination offering the same level of satisfaction to the consumer. The curve of the price effect on consumer equilibrium. A lower curve, On the other hand, will measure lesser quantities and hence the lesser level of satisfaction. An Indifference map shows the different scales of preference of the consumer. Secondly, at the point of consumer equilibrium indifference curve should be convex; it should not be concave. Hence, the Indifference curves are always convex towards the point of origin. The various combinations that provide equal satisfaction to the consumer are grouped into two sets.eval(ez_write_tag([[336,280],'googlesir_com-large-mobile-banner-2','ezslot_5',111,'0','0'])); What will happen if the consumerâs income increases to (1) \$45 (2) \$60 (3) \$ 75? (4) The slope of an indifference curve is negative, downward sloping, and from left to right. A consumer is indifferent towards different combinations located on such a curve. The consumerâs equilibrium also shifts to the right. (9) In reality indifference curves are like bangles. An Indifference Curve Neither Touches Horizontal Axis Nor Vertical Axis. A consumer would be indifferent towards the different combinations on the same scale of preference because these different combinations would get him equal satisfaction, and there will be no point for him to prefer one combination to another on the same scale of preference. This means that if we consider two bundles of goods (x 1, x 2) and (y 1, y 2) or the same indifference curve and take a weighted average of the two bundles such as: If the two indifference curves, IC 1 and IC 2, represent different amounts of satisfaction, then, on curve IC 1 (65 utils), the satisfaction one gets with combination A will be equal to that TOS 7. Plagiarism Prevention 4. Any numbers can be given to indifference curves. The second important assumption about well-behaved indifference curves is that averages are preferred to extremes. (3) The numbers I1, I2, I3, I4,………… etc. First, the budget line should be tangent to the indifference curve in more technical terms, the slope of the budget line should equal the slope of the indifference curve. As we know that all indifference curve slope downward to right or they have negative slopes. Indifference Curve Neither Touches Horizontal or Vertical Axis, 6. Properties of an Indifference Curve or IC. An individual can move to higher indifference curves I1and I2 until he reaches the saturation point 5 where his total utility is the maxi­mum. Even if the two points on these curves are on the same plane as M and A, the consumer will prefer the latter combination, because he will be having more of good X though the quantity of good Y is the same. Indifference Curves Cannot Intersect. Such a map has been drawn in Fig. A budget line represents all those combinations of the two commodities that the consumer can purchase, given his money income and the prices of the two commodities. To prove this property, let us take indifference curves contrary to this assumption. Related: 8 Major Types of Decision Making (Business Management). (Delhi 2012) Ans. Before publishing your articles on this site, please read the following pages: 1. In most cases, the consumer likes both goods. If a â« b and b â« c, then a â« c Utility â¢ Can we always represent preferences via a happiness function? But as a matter of principle their ‘effective region’ in the form of segments is shown in Figure 12. eval(ez_write_tag([[250,250],'googlesir_com-large-mobile-banner-1','ezslot_1',123,'0','0']));Related: 9 Advanced Strategies for Building Maximum Customer Satisfaction. They can be put in the order of preference like IC3>IC2>IC1>IC respectively.eval(ez_write_tag([[250,250],'googlesir_com-box-4','ezslot_15',120,'0','0'])); An Indifference curve is definite as a curve on which all the combinations of two commodities give a consumer equal satisfaction. 2. Enter your email below to get access to Our All helpful Tips and Articles. A higher curve measure greater quantities of both the commodities and Hence the highest level of satisfaction. Nine most important properties of indifference curves are as follows: (1) A higher indifference curves to the right of another represents a higher level of satisfaction and preferable combination of the two goods. Related: Top 18 Methods or Techniques of Motivating Creativity. If we take a straight line indifference curve at an angle of 45° with either axis, the marginal rate of substitution between the two goods will be constant, as in Panel (B) where ab of Y = be of X and cd of Y = de of X. Required fields are marked *. Similarly, in Figure 7 (B) combination B is preferable to combination A for combination B has more of X and the same quantity of Y. If the consumer increases his consumption more than OX or OY, his total utility will fall. 33 Qualities (Complete List), 17 Role and Importance of Small Scale Industries, 19 Role And Importance Of Managerial Economics, 13 Types of Online Advertising Techniques. Though they are falling, negatively inclined to the right, yet the rate of fall will not be the same for all indifference curves. The top part of Figure 4.13 is a conventional indifference curve diagram. Point A on the I1 curve indicates a higher level of satisfaction than point B on the I2 curve, as it lies farther away from the origin. Prohibited Content 3. Point T lies beyond his income range and hence is not feasible. It means that as the amount X is increased by equal amounts that of Y diminish by smaller amounts. The indifference curve is a boundary line: to the right of the line we have a set of points which are preferred to the set up points to the left of the line. However, the fact is that you can draw an infinite number of indifference curves between two indifference curves. Bundle M contains 8 units of good X and 21 units of good Y. 1.3 Properties of Indifference Curves. (8) Indifference curves are not necessarily parallel to each other. Indifference Curve is Always Convex Towards Point of Origin, 19 Factors Influencing Entrepreneurship Development, 6 Different Stages or Phases for Preparation of New Projects. So the indifference curve cannot be horizontal. The reasoning behind this assumption is that: (1) Each indifference curve represents a different level of satisfaction and. Updated on: August 2, 2020 Leave a Comment. Another characteristic of the indifference curve is that an indifference curve does not touch the x-axis. D.Two indifference curves cannot intersect each â¦ Report a Violation, Applications of Indifference Curve Analysis | Managerial Economics, Indifference Curves: Assumptions and Properties | Economics, The Indifference Curve Approach | Managerial Economics. MCQ Questions on Indifference Curve: Below, You will find a list of Commerce MCQ Questions as per the latest prescribed syllabus. QN=576 (17715) Bundle L contains 10 units of good X and 20 units of good Y. The various combinations that provide equal satisfaction to the consumer are grouped into two sets. 3. Downward Sloping: An indifference curve slope downward, which means, that with the more consumption of one good the consumption of the other is to be reduced to maintain the utility.Here, the principle of the marginal rate of substitution (MRS) applies, which means the increased consumption of one commodity is to be set off by the reduced â¦ In Figure 6, consider the indifference curves I1 and I2 and combination N and A respectively on them. If we assume that we know the prices of two commodities we can list down a number of comparisons combinations of two commodities that the consumer can actually buy in the market. of apples and 2.5 kg. Thus, In other words, an indifference curve is a curve on which all the combinations of two commodities give a consumer equal satisfaction. The concept of indifference curve analysis was first propounded by British economist Francis Ysidro Edgeworth and was put into use by Italian economist Vilfredo Pareto during the early 20 th century. 