Developed by the Irish-born British economist Francis Y. Edgeworth, it is widely used as an analytical tool in the study of consumer behaviour, particularly as related to consumer demand.
What is an indifference curve in business economics?
In economics, an indifference curve is a curve that shows the combination of two goods that give a consumer equivalent satisfaction and utility. … When two goods or products with different qualities give a consumer the same level of satisfaction and utility, an indifference curve is realized.
What is the importance of indifference curve?
The indifferent curve analysis is used in measuring the cost of living or standard of living in terms of index numbers. We come to know with the help of index numbers whether the consumer is better off or worse off by comparing two time periods when the income of the consumer and prices of two goods change.
Why is it called indifference curve?
An indifference curve is a curve that represents all the combinations of goods that give the same satisfaction to the consumer. Since all the combinations give the same amount of satisfaction, the consumer prefers them equally. Hence the name indifference curve.What are indifference curves explain the consumer equilibrium?
Consumer equilibrium refers to a situation, in which a consumer derives maximum satisfaction, with no intention to change it and subject to given prices and his given income. … So, a consumer always tries to remain at the highest possible indifference curve, subject to his budget constraint.
What is slope of indifference curve?
The slope of the indifference curve is the marginal rate of substitution (MRS). The MRS is the amount of a good that a consumer is willing to give up for a unit of another good, without any change in utility.
What are the two properties of indifference curve?
The four properties of indifference curves are: (1) indifference curves can never cross, (2) the farther out an indifference curve lies, the higher the utility it indicates, (3) indifference curves always slope downwards, and (4) indifference curves are convex.
Why are indifference curves convex?
Indifference curves are convex to the origin because as the consumer begins to increase his or her use of one good over another, the curve represents the marginal rate of substitution. … The marginal rate of substitution goes down as the consumer gives up one good for another, so it is convex to the origin.What are the assumption of indifference curve?
Assumptions of Indifference Curve Analysis: (1) The consumer acts rationally so as to maximise satisfaction. (2) There are two goods X and Y. (3) The consumer possesses complete information about the prices of the goods in the market.
What are advantages of curves?The advantages of providing curves are: They provide comfort to the passengers. If there is an abrupt change in the direction nor grade of a highway it will upset the passengers. They help to avoid mental strain induced by the monotony of continuous journey along straight path.
Article first time published onWhy are indifference curves concave?
Indifference curves can be straight lines if a slope is constant, resulting in an indifference curve represented by a downward-sloping straight line. If the marginal rate of substitution is increasing, the indifference curve will be concave to the origin.
What is indifference curve conclusion?
indifference curve gives equal level of. satisfaction, the consumer is indifferent to any combination he consumes. Thus, an indifference curve is also known as ‘equal satisfaction curve’ or ‘Iso-utility curve’. ○ On a graph, an indifference curve is a link. between the combinations of quantities which.
What is indifference curve class 11th?
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 it gives him the same kind of utility.
What is indifference curve and its properties with diagram?
Some of the properties are: 1. They Slope Negatively or Slope Downwards from the Left to the Right 2. They are Convex to the Origin of Axes 3. Every Indifference Curve to the right represents Higher Level of Satisfaction than that of the Proceeding One and Others.
Why indifference curve has negative slope?
An indifference curve always slopes downward from left to right, i.e. it has a negative slope. This is so because if a consumer wants to have more units of one commodity; he will have to reduce the number of units of the other commodity, due to his limited income.
Why are indifference curves downward sloping?
Indifference curves slope downward because, if utility is to remain the same at all points along the curve, a reduction in the quantity of the good on the vertical axis must be counterbalanced by an increase in the quantity of the good on the horizontal axis (or vice versa).
Can indifference curve be a straight line?
Yes, the indifference curve can be a straight line if both the goods are perfect substitutes that is both goods provide the same level of satisfaction…
What are the criticism of indifference curve?
Indifference curves are hypothetical because they are not subject to direct measurements. Although consumer choices are grouped in combinations on the ordinal scale, no operational method has been devised so far to measure the exact shape of an indifference curve.
What are the three basic assumptions of indifference approach?
The indifference approach is based on three basic assumptions: the assumption of completeness (or law of comparison), the assumption of consistency (or transi tivity) and the assumption of non-satiation (or non-satiety).
Can an indifference curve be vertical?
Therefore, an indifference curve cannot slope upward from left to right. It is not an iso-utility curve. … Therefore, an indifference curve cannot be vertical either. Consequently, an indifference curve will be of negative slope, as shown in Figure 4 (D) where A and В combinations give equal satisfaction to the consumer.
