The indifference curve
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Now point Y is not indifferent to X but is inferior to X because it lies to the left of X. This means that any indifference curve has no gaps or breaks at any point. When I talk about the slope, and this is really kind of an idea out of calculus. If combination A is equal to combination C in terms of satisfaction, and combination B is equal to combination C, it follows that the combination A will be equivalent to B in terms of satisfaction. Budget constraints give a straight line on the indifference map showing all the possible distributions between the two goods; the point of maximum utility is then the point at which an indifference curve is tangent to the budget line illustrated.

Once the consumer reaches this position he will not shift his purchase pattern, unless his income changes or unless the price of X or of Y becomes different. This is possible only if the curve is convex. So we will disregard this indifference curve as well. Given two goods in his consumption bundle, we can always find an increase in the other good which will exactly compensate him, i. That is, they slope downward from left to right.

Utility is then a device to represent rather than something from which preferences come. For this reason, an indifference curve always has a negative slope. Thus, indifference curves cannot intersect each other. And all the points below the line are inferior to all the points on the line. The change due to income is, therefore, b to C Q2 to Q1.

Thus not any point on the green line is feasible. In order to construct our budget curve, we jot down two points on our graph. 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. Indifference curve will not touch the axis Another characteristic feature of indifference curve is that it will not touch the X axis or Y axis. If the axiom of dominance is modified to some extent, any indifference curve will be thick, as illustrated in Fig. The table given below is an example of indifference schedule and the graph that follows is the illustration of that schedule.

When I change, I get a certain change in Y. Let me draw it in a color we haven't used yet. At any point on this line, if I do the same ratio between the change in Y and the change in X, I'm going to get the same value. In principle, the consumer can spend all his money on pens or pencils. Basically, I4 would require higher income than I1. This is a case of weak convexity.

It means, points B and C should also give the same level of satisfaction. If bundle A has more goods than bundle B, then the consumer prefers bundle A to B. In order to ensure this shape of an indifference curve we have to make a further axiom. Movement along the indifference curve gives various combinations of commodities X and Y ; however, yields same level of satisfaction. In this case, Î”Y 2 is greater than Î”Y 1, Î”Y 3 is greater than Î”Y 2, and so on. An alternative version of this assumption requires that if A and B have the same quantity of one good, but A has more of the other, then A is preferred to B.

Assuming it does, a full demand schedule can be deduced as the price of one good fluctuates. An indifference curve, since it represents level of satisfaction, is a subjective phenomenon. The negative slope of the indifference curve incorporates the willingness of the consumer to make trade offs. Monotonic Preferences : Monotonic preference means that a rational consumer always prefers more of a commodity as it offers him a higher level of satisfaction. Assumptions of Indifference Curve The various assumptions of indifference curve are: 1. The slope of the indifference curve measures the number of hamburgers that the individual is willing to give up to get another movie. This ratio increases or decreases as the amount of good that already has the consumer.

By definition, a person does not care found in any of the points of an indifference curve given, but rather found in the indifference curve high as possible, because the farther the source, the higher the level of satisfaction. Case Study Ms Amita's Indifference Curve is based on her commodity baskets of rice and wheat. We can clearly see that the rate of decrease in consumption of coffee is not the same as rate of increase in consumption of cigarette. The indifference curve simply reflects the preferences between pairs of goods and has no relation to money or prices. This is a consistency assumption.

We start with the implications of the axiom of non-satiation. An indifference set can never be wider than a single point. Similarly, all points to the left of X are inferior to X. If a consumer equally prefers two product bundles, then the consumer is indifferent between the two bundles. In the case of concave curve, it will lead to increasing marginal rate of substitution which is impossible. Conclusion: Thus it is concluded that i each indifference curve is a distinct line; ii it slopes downwards from left to right and iii it is convex to the origin. So we have a basic principle of consumer choice: individuals choose at the point where the marginal rate of substitution equals the relative price.