Indifference curves are downward sloping. This means that an indifference curve is negatively sloped. One noteworthy criticism is that indifference is conceptually incompatible with economic action. But this is contrary to our earlier assumption that points on a higher indifference curve show greater satisfaction than points on lower indifference curves. Because of monotonicity of preferences and non-satiation, a bundle with more of both goods must be preferred to one with less of both, thus the first bundle must yield a higher utility, and lie on a different indifference curve at a higher utility level. That is, if each point on I 2 is strictly preferred to each point on I 1, and each point on I 3 is preferred to each point on I 2, each point on I 3 is preferred to each point on I 1. The cardinal approach provides the assumption of constant utility of money, which is unrealistic.
We, therefore, conclude that indifference curves cannot cut each other. What is the Marginal Rate of Substitution for Ms. However, every higher or lower level of satisfaction can be shown on different indifference curves. There are alsoinstances where there is 0 slope or infinite slope if the quantityof a good is irrelevant to your enjoyment of it, like air. Higher indifference curve represents higher level of satisfaction Higher the indifference curves, higher will be the level of satisfaction. The indifference curve analysis was developed by the British economist Francis Ysidro Edgeworth, Italian economist Vilfredo Pareto and others in the first part of the 20th century.
This means that there is no ambiguity between what the individual prefers. Perfect complementary goods are used in a certain fixed ratio. The Structure of Economics: A Mathematical Analysis 3rd ed. The different shapes of the curves imply different responses to a change in price as shown from demand analysis in. If the quantity of one goods is reduced, then you must have more of the other good to compensate for the loss.
Assumptions of Indifference Curve The various assumptions of indifference curve are: 1. Indifference curves slop downward to the right This is an important and obvious feature of indifference curves. Therefore, two indifference curves cannot intersect each other. That is, they slope downward from left to right. Before explain this we need to understand following terms Indifference curve Indifference curve shows the combination of two goods which a consumer is consuming. If two goods are then the indifference curves will have a constant slope since the consumer would be willing to switch between at a fixed ratio.
Indifference curves slope downward to the right: This property implies that an indifference curve has a negative slope. It is convex to the origin. . In the last case we say that he is indifferent between them. We can explain consumer's equilibrium with the help of indifference curve.
The Slope of the curve is referred as the Marginal Rate of Substitution. Most economic textbooks build upon indifference curves to introduce the optimal choice of goods for any consumer, based on that consumer's income. The marginal significance of x in terms of y is shown by the angle which the tangent makes on the X axis. This property follows from assumption I. The meeting of two indifference curves at a point will also lead us to an absurd conclusion. Indifference curves do not touch either axes An indifference curve represents various combinations of two commodities. If the price of one good changes, the budget line changes as well.
The consumer gets the same level of satisfaction utility from either bundle. The blue curve shows the same thing - combination of chocolate and ice-cream that gives you equal satisfaction, except that this one has more satisfaction. The tangent is the slope of a curve at a point. Only a curve convex to the origin can show this fact. However, we see from the graph that C lies above B, so C must be preferred to B because C contains more of Good Y and the same amount of Good X as does B, and more is preferred to less. This assumption makes indifference curves continuous.
We can refer to each curve by its utility value, call them x and y. Assume, two indifference curves 1C1 and 1C2 meet in Fig a , intersect in Fig. And thus, the more preferable the indifference curve becomes. The concept of indifference curve analysis was first propounded by British economist Francis Ysidro Edgeworth and was put into use by Italian economist Vilfredo Pareto during the early 20 th century. So the consumer cannot be indifferent, as having rational behavior, he would prefer D more than C, C more than B and B more than A and the level of satisfaction is not the same. When he started consuming two cigarettes a day, his coffee consumption dropped to 8 cups a day.
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. Likewise for U 2 x , y. This must be so if the level of satisfaction is to remain constant on the same indifference curve. 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. Thus indifference curve is steeper towards the Y axis and gradual towards the X axis.