By Group 3

Indifference Curve Analysis

 Factors influencing Consumer
Choice
 Consumers have a choice of what goods/bundle to
consume
 Scarcity results in Consumer Choice becoming an
economic problem.
 Consumer choice entails :
 The economically feasible set (budget constraint)
 Preferences (indifference curves)
 Choice : Choose the bundle in the feasible set
which yields the highest utility.
Introduction to Indifference Curve

 A tool to analyze Consumer preferences

 If a consumer equally prefers two product
bundles, then the consumer is indifferent
between the two bundles. The consumer will get
the same level of satisfaction (utility) from either
bundles. Graphically speaking, this is known as
the indifference curve.
 Indifference Curve

Good X

Good Y
Indifference Map
 Marginal Rate of Substitution

 MRS is defined as the absolute value of the

slope of the indifference curve at that point.
 Willingness of the consumer to exchange one
good for another
 Marginal Rate of Substitution
Good X
Good X

Good Y

Good Y
 Properties of Indifference Curves

 Higher indifference curves are preferred to

lower ones.
 Indifference curves are downward sloping.
 Indifference curves do not cross.
Indifference curve do not cross
 Properties of Indifference Curves

 Higher indifference curves are preferred to

lower ones.
 Indifference curves are downward sloping.
 Indifference curves do not cross.
 Indifference curves are bowed inward.
Types Of
Indifference
curves
Types of Indifference curve– Perfect
Substitutes
Types of Indifference curve–Perfect
Complements
 The Consumer’s Optimum Choice

Good X

Good Y
Affect of Changing
Income on Consumer
choices
 For Normal goods

Good X

Good Y
Y
 For Inferior goods

Y Y Y
 Importance of Indifference curve

 To determine Consumer Preferences

 To determine the demand
 To know the Competitiveness of the product
 The Income fluctuations influencing
consumer demand
 To Conclude

 Indifference
curves allow us to consider the
behavior of consumers when they are
faced with combinations and bundles of
more than one commodity.

 Indifferencecurve analysis avoids the need

to measure utility in absolute terms and
requires only that consumer be able to state
his rank order of preferences for goods.