INDIFFERENCE CURVE

.An indifference curve is a set of points

with the same utility. That is, utility is constant along an indifference curve.

.an indifference curve is a graph showing

different bundles of goods between which a consumer is indifferent. That is, at each point on the curve, the consumer has no preference for one bundle over another. Each point on the indifference curve as rendering the same level of utility (satisfaction) for the consumer.
The absolute value of

the slope of an indifference curve is called the marginal rate of substitution.

Properties of indifference curves

(1) Indifference Curves are Negatively Sloped: The indifference curves must slope down from left to right. This means that an indifference curve is negatively sloped. It slopes downward because as the consumer increases the consumption of X commodity, he has to give up certain units of Y commodity in order to maintain the same level of satisfaction.

Assumption of indifference curve

There are 4 basic assumptions for indifference curve 1. Analysis is restricted to goods that yield positive marginal utility, or simply, more is better.

2.Marginal rate of substitution, MUx/MUy, or the ratio at which a household is willing to substitute Y for X. As you consume more of X and less of Y, X becomes less valuable in units of Y

3. Consumer have the ability to choose among the combination of goods and services available. 4. Consumer choices are consistent with a simple postulate of rationality. if A consumer prefer A to B and B to C , then when confronted consumer will prefer A to C as well.

In fig. 3.4 the two combinations of commodity cooking oil and commodity wheat is shown by the points a and b on the same indifference curve. The consumer is indifferent towards points a and b as they represent equal level of satisfaction.

(2) Higher Indifference Curve Represents Higher Level:

A higher indifference curve that lies above and to the right of another indifference curve represents a higher level of satisfaction and combination on a lower indifference curve yields a lower satisfaction.

In this diagram (3.5) there are three indifference curves, IC1, IC2 and IC3 which represents different levels of satisfaction. The indifference curve IC3 shows greater amount of satisfaction and it contains more of both goods than IC2 and IC1 (IC3 > IC2 > IC1).

(3) Indifference Curve are Convex to the Origin:

This is an important property of indifference curves. They are convex to the origin (bowed inward) because of marginal rate of substitution, shows the rate at which consumers are willing to give up one good in exchange for more of the other good.

rate of substitution the rate at which one good must be added when the other is taken away in order to keep the individual indifferent between the two combinations.
Marginal Law

of diminishing marginal rate of substitution as you get more and more of a good, if some of that good is taken away, then the marginal addition of another good you need to keep you on your indifference curve gets less and less.

(4) Indifference Curve Cannot Intersect Each Other:

Given the definition of indifference curve and the assumptions behind it, the indifference curves cannot intersect each other. It is because at the point of tangency, the higher curve will give as much as of the two commodities as is given by the lower indifference curve. This is absurd and impossible.

(5) Indifference Curves do not Touch the Horizontal or Vertical Axis:

One of the basic assumptions of indifference curves is that the consumer purchases combinations of different commodities. He is not supposed to purchase only one commodity. In that case indifference curve will touch one axis. This violates the basic assumption of indifference curves.

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