Therefore, indifference curves are convex to the origin see Fig. Properties of Indifference Curves 1. This is reflected in the indifference curves. In this case, indifference curves would either be completely flat if good x were the one of no consequence or completely vertical if good y yielded no value. So an indifference curve cannot be horizontal. However, each indifference curve shows the same level of satisfaction individually.
If it touches X-axis, as I 1; in Figure 12. Indifference curve is a better tool to classify substitutes and complementary goods. He is supposed to rank them in his order of preference and can state if he prefers one combination to the other or is indifferent between them. The characteristics of indifference curves do not include which of the following? Similarly, all points to the left of X are inferior to X. Diminishing marginal rate of substitution: Indifference curve analysis assumes diminishing marginal rate of substitution. The different combinations of two goods on the scale of preferences would get the consumer equal satisfaction. The consumer would definitely prefer to have a combination on Point T, provident he can purchase it.
Indifference curve approach is base for the measurement of 'consumer's surplus'. He must reduce his consumption of another good. The Slope of the curve is referred as the Marginal Rate of Substitution. So, going back to the definition, both of those bundles would be on an indifference curve. Crossing indifference curves would suggest that a. As we already learned above, consumers always prefer larger quantities.
In other words, the indifference curve is relatively flatter in its right-hand portion and relatively steeper in its left-hand portion. It is not a boundary line separating preferred bundles from non-preferred ones. Assumptions of Indifference Curve The various assumptions of indifference curve are: 1. The axiom holds only for economic goods. These assumptions are Two commodities It is assumed that the consumer has fixed amount of money, all of which is to be spent only on two goods. As he moves from combination A to 6 he gives up less quantity of Y in order to have more of X.
In other words, if a consumer moves among bundles in the indifference set, he can only do this by substituting or trading off the goods — giving more of one good must require taking away some of the other good so that he can stay within the indifferent set. Other critics point out that it is theoretically possible to have concave indifference curves, or even circular curves that are either convex or concave to the origin at various points. The consumer has to reach the highest possible scale of reference. Indifference curves are always convex to the origin: This property of an indifference curve is based on diminishing marginal rate of substitution, which is the assumption of indifference curve analysis. Another characteristic of the indifference curve is that hire the indifference curve higher will be the level of satisfaction. If he increases his consumption of X so as to reach the dotted portion of the I 1 curve horizontally from point S , he gets negative utility.
And thus, the more preferable the indifference curve becomes. But a glance at Fig. This kind of ordering is shown in Fig. As long as a consumer is on the same indifference curve a. The indifference curve analysis measures utility ordinally. Indifference curves do not intersect with each other.
This must be so if the level of satisfaction is to remain the same on an indifference curve. A higher curve measure greater quantities of both the commodities and Hence the highest level of satisfaction. Given two goods in his consumption bundle, we can always find an increase in the other good which will exactly compensate him, i. Indifference curves, like many aspects of contemporary , have been criticized for oversimplifying or making unrealistic assumptions about human action. However, two indifference curves for one single consumer can never intersect.
Perfect complementary goods are used in a certain fixed ratio. This property follows from assumption I. Therefore, an indifference curve cannot be vertical either. Consumers would prefer to move in the direction indicated by the arrow in the figure. The Structure of Economics A Mathematical Analysis, 3rd ed.
To the right of X, all bundles contain more x 1; hence all points to the right of x 1, regardless of which quadrant they are in, are preferred to X. 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. If a consumer equally prefers two product bundles, then the consumer is indifferent between the two bundles. The curves that are farther away from the origin represent higher levels of satisfaction as they have larger combinations of X and Y. So far we have established only that the line slopes downward from left to right. The consumer will purchase 3 kg.