An indifference curve is always. The Indifference Curve: Meaning, Property and Assumption 2019-01-30
An indifference curve is always Rating:
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What is the meaning of indifference curve?
If they did, the axes would become extensions of the indifference curves. Indifference Curves are Downward Sloping Virtually all indifference curves have a negative slope. 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. One kind of economic good is placed on each axis. This is a case of weak convexity. That is, total utility remains constant.
Which of the following points are on Bobby's price-consumption curve? Properties of Indifference Curve: From the assumptions described above the following properties of indifference curves can be deduced. Indifference curves are always concave from below. The assumptions of the ordinal theory are the following: 1 The consumer acts rationally so as to maximise satisfaction. Axiom of Non-Satiation Monotonicity : The axiom of dominance is also known as the axiom of non-satiation or the axiom of monotonicity. All the combinations on an indifference curve give the same level of satisfaction.
Examples of goods that are perfect substitutes are not difficult to find in the real world. 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. The axes of those graphs represent one commodity each e. 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. The indifference curve analysis measures utility ordinally. But one represents convex preferences and the other concave. Indifference curves are drawn based on the consumer's presumed indifference.
Assumptions of Indifference Curve Analysis: The indifference curve analysis retains some of the assumptions of the cardinal theory, rejects others and formulates its own. We know that total utility of commodity tends to increase with increase in stock of the commodity. This situation has been shown in the diagram as given below: 6. We therefore conclude that indifference curves cannot cut each other. He must increase his consumption of another good. The slope of an indifference curve shows the rate of substitution between two goods, i. Thus indifference curve is steeper towards the Y axis and gradual towards the X axis.
This property follows from assumption I. Higher indifference curves are preferred to lower ones, since more is preferred to less non-satiation. If they did, rational ordering would be violated and the postulate that more goods are better than fewer goods would be violated. Diminishing marginal rate of substitution Marginal rate of substitution may be defined as the amount of a commodity that a consumer is willing to trade off for another commodity, as long as the second commodity provides same level of utility as the first one. An Indifference curve is a curve which represents all those combinations of goods which give some satisfaction to the consumer. Marshallian analysis of human behavior accepted the Cardinal system as a measurement of utility.
B is false: consumers can have different preferences. Higher Indifference curves represent higher levels of satisfaction: Higher indifference curve represents large bundle of goods, which means more utility because of monotonic preference. Straight-line indifference curves of perfect substitutes are shown m Fig. Indifference Curve: Concept Properties Features Examples Examples of Indifference Curve Example No. As we defined the giving the same level of satisfaction with the different points of combinations of two commodities A, B, C, D and E combinations. Another point which is worth mentioning in this regard is that indifference curves cannot even meet or touch each other or be tangent to each other at a point. The axiom of strict convexity suggest that, given any consumption bundle Y, its better set a strictly convex.
The Indifference Curve: Meaning, Property and Assumption
All points that lie above to the northeast of an indifference curve represent consumption bundles preferred to those represented by all points on that curve. Also, two goods can never perfectly substitute each other. This must be so if the level of satisfaction is to remain the same on an indifference curve. Indifference curves always slope downwards from left to right. 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. Therefore, an indifference curve cannot be vertical either. Therefore, indifference curves slope downward to the right.
Since an individual can rank any of the baskets of goods and every point on the axiom panel represents one particular basket of goods, then every point should have one and only one indifference curve going through it. A higher curve measure greater quantities of both the commodities and Hence the highest level of satisfaction. As indifference curve theory is based on the concept of diminishing marginal rate of substitution, an indifference curve is convex to the origin. We start with the implications of the axiom of non-satiation. The slope of the indifference curve is equal to the marginal rate of substitution: the amount of one good that is just sufficient to compensate the consumer for the loss of a unit of the other good.
In other words, the indifference curve is relatively flatter in its right-hand portion and relatively steeper in its left-hand portion. Properties of Indifference Curve: 1. This is so because indifference curves are assumed to be negatively sloping and convex to the origin. What is the Marginal Rate of Substitution for Ms. The characteristics of indifference curves do not include which of the following? The Marginal Rate of Substitution is the rate at which the consumer must sacrifice units of one commodity to obtain one more unit of another commodity. This violates the basic assumption of indifference curves. As stated above, when two goods are perfect substitutes of each other, the indifference curve is a straight line on which marginal rate of substitution remains constant.
