Indifference curves are negatively sloped or they slope downward It shows that more of one commodity implies less of the other, so that total satisfaction remains the same. Indifference curves are convex to the point of origin An indifference curve will ordinarily be convex to the point of origin. This is because of diminishing Marginal Rate of Substitution.
Different indifference curves are used to indicate lower and higher levels of satisfaction of different combination of two goods. Well, it is a graphical representation that goes on exploring the way a consumer might be found to be indifferent towards two goods or products. These goods or products are the ones that give them the customer satisfaction and utility to the same level. And in such a graph, it can be determined how a consumer’s preferences and budget constraints might change or affect their decisions. Other than these, you can find there to be other applications of the Indifference Curves as well, which include welfare economics along with the marginal utility theory. This has to do with the marginal rate of substitution .
Features of Indifference Curve
The figure above, consisting of three Indifference Curves, speculates the view that a consumer is indifferent to the combinations of products on the same Indifference Curve. Also, a consumer, say Samaira, would prefer the combinations on the higher Indifference Curve to the ones on the lower curves. A higher Indifference Curve indicates higher levels of satisfaction – combinations on IC2 yield greater satisfaction than those on IC1.
The slope of an indifference curve reveals the speed at which two goods can be exchanged without affecting the patron’s utility. Suppose Ms. Bain is at point S, consuming four days of snowboarding and 1 day of horseback driving per semester. The slope of an indifference curve exhibits the speed at which two goods could be exchanged with out affecting the buyer’s utility.
- That implies that the rate at which she would be keen to trade snowboarding for horseback riding is lower than the market asks.
- If these could be substituted perfectly, the MRS would remain the same.
- The diploma of convexity of an indifference curve relies upon upon the speed of fall in the marginal rate of substitution of X for Y.
An indifference curve which is to the right and above another shows a higher level of satisfaction to the consumer. Here, IC3 shows higher level of satisfaction than IC2. Thus, the indifference curve relates to a higher level of income of the consumer. In fig, IC1,IC2and IC3 show different combinations of rice and wheat by a consumer. Each curve represents the same level of satisfaction. These curves are not parallel to each other as it all depends upon the marginal rate of substitution of curves.
6.Define an indifference curve, Explain why an indifference curve is downward sloping from left to right. Those points are plotted as points X′ and Z′ on her demand curve for horseback riding in Panel of Figure 7.12 “Utility Maximization and Demand”. Figure 7.eleven “Applying the Marginal Decision Rule” showed Janet Bain’s utility-maximizing solution for skiing and horseback driving.
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If two curves intersect each other at a point, it implies that both curves contain the same level of satisfaction at that point which is not logical. It is the maximum quantity of 1 good a client is keen to surrender to acquire an additional unit of one other. Here, it is the number of days of skiing Janet Bain would be keen to give up to obtain an extra day of horseback using. Notice that the marginal price of substitution declines as she consumes increasingly more days of horseback riding. The optimum portions consumed will be that combination of X and Y that puts the person on the highest possible indifference curve—that’s, quantities X0and Y0on the above Figure.
The MRS or Marginal Rate of Substitution can be defined as the rate at which a consumer is prepared to exchange a product, M for another product, N. To understand this, let’s take a close look at Samaira’s situation. Assuming other things remain constant, the levy of a tax on Good X shows a negative relationship with the supply of a good. When there is a tax on a good, the cost of production increases and decreases the profit of the producer.
Applicants can also attempt the UGC NET Test Series which helps you to find your strengths and weakness. Indifference curves of imperfect substitutes are concave to the origin. Marginal Rate of SubstitutionMarginal Rate of Substitution refers to the rate at which the consumer is willing to sacrifice one good to obtain one more unit of the other good. If a consumer wants to have more of X, it reduces the MU of X. Therefore, he will be willing to sacrifice less unit of Y.
As we already learned above, consumers always prefer larger quantities. Therefore it is impossible for both curves to provide the same level of satisfaction, which means they can never intersect. Indifference curves never touch or intersect each other Each Indifference curve represents a different level of satisfaction. Also if indifference curves intersects Law of Transitivity and indifference law will contradict each other. For instance,in the graph showing the indifference curve is convex to the origin. It signifies that the marginal rate of substitution of rice for wheat is declining.
More Consumer behaviour Questions
Because all different components in the answer are unchanged, we can decide two points on Ms. Bain’s demand curve for horseback riding from her indifference curve diagram. It is impossible for two indifference curves to cross. To understand why this is the case, we can look at what would happen if they did intersect. As we know, all combinations of good A and good B that lie on the same indifference curve make the consumer equally happy. Thus, all other combinations on both curves would have to provide the same level of satisfaction as well. However, if we compare point B and point C, we can clearly see that point C offers more of good A and good B as compared to point B .
Indifference curves may be straight strains if a slope is fixed, resulting in an indifference curve represented by a downward-sloping straight line. The diploma of convexity of an indifference curve relies upon upon the speed of fall in the marginal rate of substitution of X for Y. As stated above, when two items are perfect substitutes of each other, the indifference curve is a straight line on which marginal fee of substitution remains constant.
Figure 7.9 “The Marginal Rate of Substitution” reveals indifference curve C from Figure 7.eight “Indifference Curves”. Higher indifference curve show higher level of satisfaction. Most of the products, the books and the food, are really very flawed substitutes for one another. If these could be substituted perfectly, the MRS would remain the same.
For example,in fig, the consumer will get equal satisfaction at all points on the indifference curve. In combination A, the quantity of wheat is more than rice. Similarly, in combination D, the quantity of rice is more than wheat. Consequently, the slope of the indifference curve will invariably be downward sloping negative curve.
Because of this relationship, the four properties of indifference curve curve is bowed inward (i.e. convex). This is equivalent to saying that as the consumer substitutes commodity X for commodity Y, the marginal rate of substitution diminishes of X for Y alongside an indifference curve. An indifference curve is a graph that reveals a combination of two items that give a consumer equal satisfaction and utility, thereby making the buyer indifferent. By observing what occurs to the quantity of the nice demanded, we can derive Ms. Bain’s demand curve.
Monotonic preferences means that greater consumption of a commodity by the consumer gives him higher level of satisfaction. Indifference curve touches neither X-axis nor Y-axis It is often assumed that a consumer buys a combination of two goods. Hence, an indifference curve touches neither X-axis nor Y-axis as touching either axis represents zero units of the respective goods. Monotonic preferences means that greater consumption of a commodity by the consumer gives him higher level of satisfaction, as compared to less.
Note According to Law of Transitivity if a consumer prefer bundle A over bundle B, and bundle B over bundle C, then he will indirectly prefer bundle A over bundle C. Indifference curves do not touch the horizontal or vertical axis. Therefore consumers are keen to give up extra of this good to get one other good of which they have little. If a consumer has plenty of good B, the MRS is three items of good B per unit of fine A. If she has extra of fine A, the MRS is zero.5 units of good B per unit of excellent A.
In fig, IC2 is higher and IC1 is a lower indifference curve. Point B on IC2curve represents more units of rice than point A on IC1.Although the units of wheat remain same in both combinations. Hence, point B represents more satisfaction than point B. Thus, a higher indifference curve implies higher satisfaction. Each indifference curve represents a different level of satisfaction, so they cant intersect each other. It is not possible that two curves with different satisfaction levels cut each other at any point.
This becomes pretty obvious if we look at the illustration below. As could be seen from Equation four, this means that the indifference curve gets flatter as the amount of X consumed increases relative to the quantity of Y consumed. Or, as we are saying, indifference curves are concave outward, or convex with respect to the origin. The slope of the indifference curve is known as the marginal rate of substitution, which declines as the quantity of X increases relative to the amount of Y.
We know that the marginal utility of consuming a good decreases as its supply increases . Therefore consumers are willing to give up more of this good in order to get another good of which they have little. If a consumer has a lot of good B, the MRS is 3 units of good B per unit of good A. If she has more of good A, the MRS is 0.5 units of good B per unit of good A. 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.
Point X, where the speed at which she is keen to exchange one good for another equals the rate the market asks, gives her the maximum utility attainable. The marginal fee of substitution is the same as absolutely the worth of the slope of an indifference curve. An indifference curve is a graph showing a combination of two goods that give the consumer equal satisfaction and utility. Each point on an indifference curve indicates that a consumer is indifferent between the two and all points give him the same utility. It is a graph showing the combinations of two goods that give the consumer the same level of satisfaction and utility, making him indifferent. Indifference curves are used to show the consumer’s preferences and demand patterns for individual consumers over different commodities.
An trade of two days of skiing for one day of horseback using would go away her at point T, and she or he could be as nicely off as she is at level S. Her marginal rate of substitution between points S and T is 2; her indifference curve is steeper than the budget line at point S. She can be prepared to surrender as many as 2 days of skiing to achieve an additional day of horseback riding; the market demands that she hand over just one. An indifference curve is a graph that shows a combination of two goods that give a consumer equal satisfaction and utility, thereby making the consumer indifferent. Indifference curves are heuristic devices used in contemporary microeconomics to demonstrate consumer preference and the limitations of a budget.
She is thus willing to surrender 2 days of snowboarding for a second day of horseback using. Explain the three properties of the indifference curves. Samaira gains satisfaction from having 1 unit of food and 12 units of books. Examine the effect of fall in the own price of good X and rise in tax rate on good X, on the supply curve. Indifference curves are widely used in microeconomics to analyze consumer preferences, the effects of subsidies and taxes, and a few other concepts.