What are the features of indifference curve?

What are the features 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.

What is indifference curve and its properties with diagram?

Indifference curves slope downward to the right: This property implies that an indifference curve has a negative slope. This property follows from assumption I. Indifference curve being downward sloping means that when the amount of one good in the combination is increased, the amount of the other good is reduced.

Which is the main 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 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.

What are the examples of indifference curve?

An indifference curve shows all combinations of goods that provide an equal level of utility or satisfaction. For example, Figure 1 presents three indifference curves that represent Lilly’s preferences for the tradeoffs that she faces in her two main relaxation activities: eating doughnuts and reading paperback books.

What is indifference curve and its importance?

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 the shape of indifference curve?

Indifference curves have a roughly similar shape in two ways: 1) they are downward sloping from left to right; 2) they are convex with respect to the origin. In other words, they are steeper on the left and flatter on the right.

Why indifference curve is 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 is indifference curve approach?

The indifference curve method seeks to derive all rules and laws about consumer’s demand that are derivable from the cardinal utility analysis. For example, the prices of goods, the markets in which they are available the satisfaction to be obtained from them etc., are all known to the consumer.

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. In simple terms, IC is convex to origin because of decreasing MRS(Marginal rate of substitution).

Why is indifference curve L shaped?

Indifference curves are linear if the individual regards the two goods as perfect substitutes. They are L-shaped if the individual regards the two goods as perfect complements.

Why is indifference curve concave?

Indifference curves are convex if the individual likes to consume the two goods together. They are concave if the individual prefers to consume them separately.

What are the properties of an indifference curve?

There are four important properties of indifference curves that describe most of them: (1) Indifference curves are downward sloping, (2) higher indifference curves are preferred to lower ones, (3) indifference curves cannot intersect, and (4) indifference curves are convex (i.e. bowed inward).

What is the definition of indifference curve?

What is the ‘Indifference Curve’. 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.

What is a linear indifference curve?

Answer : Linear indifference curves are indifference curves that have the same slope every- where — i.e. indifference curves with constant rather than diminishing MRS . Thus, the MRS cannot depend on x 1 or x 2 for the indifference curve to be linear — which is the case only for u B ( x 1 , x 2 ).

What is vertical indifference curve?

An indifference curve represents various combinations of two commodities. If an indifference curve touches horizontal axis or vertical axis, it implies that the customer prefers only one commodity because when it touches axes, one of the commodities becomes zero quantity.