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. 7. 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. MCQ Questions on Indifference Curve: Below, You will find a list of Commerce MCQ Questions as per the latest prescribed syllabus. To do this, we will analyse one commo­dity, beer, and assume that consumer income and the price of all other goods remains constant. Since by moving to the dotted portion he gets negative utility, the effective region of the circular curve will be the convex portion. A set of indifference curves is called âan Indifference mapâ. of Apples. Secondly, at the point of consumer equilibrium indifference curve should be convex; it should not be concave. With the help of the available information, we can draw (a) budget line and (b) Indifference map. Thus, In other words, an indifference curve is a curve on which all the combinations of two commodities give a consumer equal satisfaction. 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. In this video you will learn Properties of Indifference Curve theory. QN=576 (17715) Bundle L contains 10 units of good X and 20 units of good Y. The concept of the scale of differences forms the basis of the indifference curve analysis. Indifference Curves are Not Necessarily Parallel to Each Other, 8. 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. The slope of the curve becomes smaller as we move to the right. 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. Grapes are priced at \$6 per kg whereas apples are priced at \$5 per kg. A consumer is indifferent towards different combinations located on such a curve. Indifference Curve Neither Touches Horizontal or Vertical Axis, 6. Another characteristic of the indifference curve is that hire the indifference curve higher will be the level of satisfaction. However, it was brought into extensive use by economists J.R. Hicks and R.G.D Allen. The curve of the price effect on consumer equilibrium. Thus, Indifference curve analysis seeks to remedy this shortcoming of utility analysis. 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. Thus an indifference curve â¦ Completeness: 2. The slope of an indifference curve reflects the rate at which the consumer is willing to substitute one good for the other. As he moves from combination A to B he gives up less quantity of Y in order to have more of X. 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. L-Shaped Indifference Curves 7. 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. Ch. Equilibrium is established at point E on IC2 in fig. What are the three properties of indifference curves for two goods? 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? 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. Your email address will not be published. An Indifference curve is a curve that represents all those combinations of goods that give some satisfaction to the consumer. must be negative. On the line â¦ An indifference map, is collection of indifference curves corresponding to different levels of satisfaction. 6.Define an indifference curve, Explain why an indifference curve is downward sloping from left to right. Therefore, the indifference curve cannot be vertical either. Thus, The figure shows that with every fall in the price of grapes, The budget line shifts to the right. This is so because indifference curves are assumed to be negatively sloping and convex to the origin. Consumers equilibrium by shifting to the right indicating that the consumer will reach a high level of satisfaction. As in Figure 10 (A) the consumer is giving up ab< cd< ef units of Y for be = de =fg units of X. As we know that all indifference curve slope downward to right or they have negative slopes. â¢ An indifference curve is convex to the origin, reflecting the principle of diminishing marginal utility. 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. The top part of Figure 4.13 is a conventional indifference curve diagram. (8) Indifference curves are not necessarily parallel to each other. This is absurd because A is preferred to B, begin on a higher indifference curve I1. Indifference Curves always Slope Downwards from Left to Right. 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. B.Indifference curve is downward sloping. 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. The higher the indifference, the higher utility compared to indifference curves below it. given to indifference curves are absolutely arbitrary. As a result, the new budget lines will shift towards right on the x-axis. Indifference curve is a curve showing different combinations of two goods, each combination offering the same level of satisfaction to the consumer. Indifference curves are upward-sloping. IC slopes downward: It slopes downward from left to right. convex to the origin. Indifference Curves Never Cut Each Other, 5. (9) In reality indifference curves are like bangles. Explanation of consumerâs Equilibrium with the help of indifference curve analysis. 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. Privacy Policy 8. The point where the budget line is tangent to one of the Indifference curves will determine the consumerâs equilibrium. Your email address will not be published. 7. Such a map has been drawn in Fig. To prove this property, let us take indifference curves contrary to this assumption. Your answer must explain the economic logic here, and may also include appropriate equations and/or graphs. Though they are falling, negatively inclined to the right, yet the rate of fall will not be the same for all indifference curves. Properties of an Indifference Curve or IC. 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. It tries to solve how does a consumer reaches the equilibrium point without measuring the utility in Cardinal numbers. Thus an indifference curve cannot be a straight line. 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. Each point on an indifference curve indicates that a consumer is indifferent between the two and all points give him the same utility. As a result of an increase in the consumerâs income, The budget lines will shift right words. Sample pictures of indifference curves may show you one or two indifference curves. This â¦ C.Indifference curve is concave to origin. Understand the concept clearly by consistently practicing the Multiple Choice Questions and score well in your exams. Some of these important properties of indifference curve are as follows: eval(ez_write_tag([[300,250],'googlesir_com-medrectangle-4','ezslot_12',101,'0','0']));As we defined the indifference curve giving the same level of satisfaction with the different points of combinations of two commodities A, B, C, D and E combinations. Any numbers can be given to indifference curves. Related:eval(ez_write_tag([[728,90],'googlesir_com-narrow-sky-1','ezslot_21',115,'0','0'])); Indifference curve analysis is based on the assumption of the diminishing marginal rate of substitution. The following are key characteristics of indifference curves except: a. each indifference curve identifies the combinations of X and Y where the consumer is equally happy. So the indifference curve cannot be horizontal. 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. 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. The reasoning behind this assumption is that: (1) Each indifference curve represents a different level of satisfaction and. (6) An indifference curve cannot touch either axis. Thus an indifference curve is always convex to the origin because the marginal rate of substitution between the two goods declines. Report a Violation, Applications of Indifference Curve Analysis | Managerial Economics, Indifference Curves: Assumptions and Properties | Economics, The Indifference Curve Approach | Managerial Economics. The convexity rule implies that as the consumer substitutes X for Y the marginal rate of substitution diminishes. 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. A higher indifference curve represents a higher level of satisfaction than a lower indifference curve: 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. An Indifference curve is a geometrical representation of a consumerâs scale of preferences. 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. To understand why this is â¦ TOS 7. The consumer has to reach the highest possible scale of reference. Indifference curves are. If he increases his consumption of X so as to reach the dotted portion of the I1 curve horizontally from point S to N he gets negative utility. A higher curve measure greater quantities of both the commodities and Hence the highest level of satisfaction. â¢ Property 2: Indifference curves are downward sloping. Enter your email below to get access to Our All helpful Tips and Articles. 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. Another characteristic of the indifference curve is that an indifference curve does not touch the x-axis. 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. (5) Indifference curves can neither touch nor intersect each other so that one indifference curve passes through only one point on an indifference map. 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. Required fields are marked *. So that the consumer is indifferent, between all set of bundles. 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. Another characteristic feature of indifference curve is that â¦ A lower curve, On the other hand, will measure lesser quantities and hence the lesser level of satisfaction. The consumer will purchase 3 kg. 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. They can be put in the order of preference like IC3>IC2>IC1>IC respectively. If the consumer increases his consumption more than OX or OY, his total utility will fall. 4.Which of the following is not the property of indifference curve: A.Higher the indifference curves higher the level of satisfaction. The slope of an indifference curve. Transitivity: 3. In Figure 6, consider the indifference curves I1 and I2 and combination N and A respectively on them. 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. (7) An important property of indifference curves is that they are convex to the origin. An Indifference Curve Neither Touches Horizontal Axis Nor Vertical Axis. 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: Notify me of follow-up comments by email. Which of the following violates the properties of indifference curves? A graph of indifference curves for several utility levels of an individual consumer is called an indifference map. The curve that joins the various equilibrium points is known as the, Characteristics of the Indifference Curve. The Problem of Rationing: The indifference curve technique is used to explain the problem arising â¦ Indifference Curve: An indifference curve represents a series of combinations between two different economic goods, between which an individual â¦ The numbers can be in the ascending order of 1, 2, 4, 6 or 2, 3, 1, 4 etc. Indifference curve will not touch the axis. Therefore, the consumerâs equilibrium is established at point P. The following conclusions must be fulfilled for a consumer to be in equilibrium. The curve that joins the various equilibrium points is known as the price consumption curve. In Figure 7 (A) combination B of OX1 + OY1 is preferable to combination A which has a smaller amount of the two goods. 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¦ The consumer is indifferent between bundle L and bundle M. Assume that the consumer's preferences satisfy the four properties of indifference curves. (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. In the diagram, clearly shows and clarifies characteristic of an indifference curve. But the indifference curve cannot be concave to the origin. 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. Such curves are in contradiction to the as­sumption that the consumer buys two goods in combinations. 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 different combinations of two goods on the scale of preferences would get the consumer equal satisfaction. D.Two indifference curves cannot intersect each 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 We can make certain realistic assumptions about the shape of the Indifference curves. Definition: An indifference curve is a graph showing combination of two goods that give the consumer equal satisfaction and utility. 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The help of indifference curves drawn through each of the points we have tried to make it clear in simple...: 8 Major Types of Decision Making ( Business Management ) 4.13 is a geometrical representation of consumerâs! Slopes downwards to the right Promotion ( with examples ) consider the indifference indicates! Each other equilibrium point will also shift the right indicating that the consumer increases consumption! For a consumer is willing to substitute one good for the other possible scale of would. Result, the budget lines will shift towards right on the left to assumptions about the shape of the of... The effective region of the circular curve will be the level of satisfaction as compared to a curve joins! The concept clearly by consistently practicing the Multiple Choice Questions and score well in your exams please... The properties of indifference curves I1 and I2 and combination N and a respectively on them your preparation the. That contain more of X a is preferred to b he gives up less quantity of Y in to. Illustrates the income effects on consumersâ equilibrium different scales of preference like IC3 > >... On: August 2, 2020 Leave a Comment about well-behaved indifference curves called. More than OX or OY, his total utility is the maxi­mum and Articles about. Smaller as we move to higher indifference curves is that an indifference.... \$ 4 per kg whereas apples are priced at \$ 5 per kg whereas are. 10 ( C ) shows the different combinations of two goods that give equal satisfaction the! The equilibrium point without measuring the utility in Cardinal numbers is established at point P. the following must! Figure 6, consider the indifference curve Neither Touches Horizontal Axis Nor Vertical Axis, 6 on. Is 7 properties of indifference curve to one of the points we have tried to make it clear very. That a consumer is willing to substitute one good for the other commodity reduces consumer will a. Lie on the other commodity reduces have tried to make it clear in very simple words set indifference. What are the different examples of indifference curves may show you one or two indifference curves never... Is termed as properties of indifference curves for two goods in combinations represents higher level: higher! Downward from left to right or they have negative slopes consumer 's preferences satisfy the properties! On both the commodities and hence the highest possible scale of differences forms the of. Curves touch each other ( 4 ) the slope of an indifference curve.. To be in equilibrium either Axis drawn through each of the points we have tried to make clear! As compared to a curve showing different combinations located on such a curve â¢ an indifference curve can not Vertical... Grouped into two sets in this video you will learn properties of indifference curve: an IC slopes to! Cases, the consumer would like to purchase more of X infinite number of indifference curves is:..., and from left to right Horizontal Axis Nor Vertical Axis, 6 the dotted portion he gets negative,... ) shows the different combinations that contain more of X shows indifference curves to assumptions about the shape of indifference! L and bundle M. Assume that the consumer will reach a high level of satisfaction, curve. One commodity in combination is increased, the effective region ’ in diagram! One good for the other hand, will measure lesser quantities and hence the lesser level equal... With every fall in the following are those properties: indifference curves between two indifference.. Different scales of preference like IC3 > IC2 > IC1 > IC respectively will shift! To solve how does a consumer to be negatively sloping and convex to the would. They can be put in the order of preference of the curve that represents those! Business Management ) of diminishing marginal utility high level of satisfaction to b, or b a diminishing... Logic here, and from left to right a is preferred to extremes OX... Consumer has \$ 30 to spend on grapes and Apple combination N and respectively... Consumer increases his consumption more than OX or OY, his total utility will.... Marginal utility since grapes have gone cheaper, the effective region ’ in the case of those complementary goods are! Can make certain realistic assumptions about the shape of the scale of preferences would get the 's. Downward to right 7 ) an indifference curve curves: Our imaginary consumer has to the. Point is known as the income-consumption curve, explain why an indifference map should! Forms the basis of the indifference curve is always convex towards the point of equilibrium. We have tried to make it clear in very simple words higher be! With every fall in the indifference curve diagram goods, each combination the. Seeks to remedy this shortcoming of utility analysis can be put in the form of segments shown. Consumer are grouped into two sets reach the highest level of satisfaction 2. Smaller as we know that all indifference curve as convex to the origin: indifference curves between two curves... Oy, his total utility is the maxi­mum the Multiple Choice Questions and well... ( 8 ) indifference curves are not Necessarily Parallel to each other right on the right-hand side represents different! Into two sets shift the right a â b, or b a that with every fall the... And/Or graphs property of indifference curve indicates that a consumer is willing to substitute one good for the hand. Nor Vertical Axis consumerâs scale of preferences would get the consumer are grouped into two sets:. Contains 7 properties of indifference curve units of good Y Panel ( b ) of the curve that joins various. Properties of indifference curves are not Parallel to each other please read following... Each combination offering the same utility that represents all those combinations of two goods give... So because indifference curves 7 I2 until he reaches the saturation point 5 his... Points give him the same level of satisfaction, 2 substitution between the two I1and... That with every fall in the form of segments is shown in figure 6 consider. M contains 8 units of good Y ) each indifference curve should be ;... All indifference curve gives a level of satisfaction to the origin: important. His total utility will fall Nor Vertical Axis quantities of both the curves yields the same reasoning if... If two indifference curves always slope downwards from left to right possible scale of differences forms basis!: August 2, 2020 Leave a Comment to the as­sumption that the consumer grouped. Case of those complementary goods which are jointly demanded like bread and butter shoes. Of equal satisfaction to the right at \$ 6 per kg indifferent, between all set of bundles properties! Tips and Articles dotted portion he gets negative utility, the higher the curve... Line is tangent to one of the consumer 's preferences satisfy the four properties indifference... Secondly, at the point of origin equilibrium by shifting to the.. ) the slope of an indifference curve the circular curve will be level. Does a consumer to be in equilibrium examples ) the diagram, 1 C ) shows indifference! Convex towards the point of consumer equilibrium indifference curve Neither Touches Horizontal or Axis! It means that as the, Characteristics of the available information, we can draw an infinite number indifference. Of good X and 21 units of good X and 20 units of good X and 21 of. That as the, Characteristics of the circular curve will be the convex portion that with every fall the.: August 2, 2020 Leave a Comment the circular curve will the! Can draw an infinite number of indifference curve is a geometrical representation of a scale! 7.11 `` indifference curves '' shows indifference curves: Our imaginary consumer has \$ 30 to spend grapes... Butter, shoes and socks be in equilibrium either a b, begin on a higher curve. Explain the economic logic here, and from left to right S and R also on! Grouped into two sets following pages: 1 can not be concave negative utility, the equilibrium point measuring... To extremes curves may show you one or two indifference curves, of! Of reference curve gives a level of satisfaction to the right will fall 2, 2020 a! S and R also lie on the right-hand side represents a high level of satisfaction, 2 figure... Never inter­sect at any point to substitute one good for the other hand, will measure lesser and!
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