Properties of Indifference Curve

AN ASSIGNMENT ON PROPERTIES OF INDIFFERENCE CURVE
FOR THE PARTIAL FULFILLMENT OF PAPER MANAGERIAL ECONOMICS PGDM 2nd SEMESTER

SUBMITTED TO:MR. MEHUL CHAUHAN ASSISTANT PROFESSOR XIDAS, JABALPUR

SUBMITTED BY:MADHAVESH KUMAR ROLL NO. – 37 EMAIL ID- kumarmadhavesh@gmail.com

XIDAS, Jabalpur

1

Example of indifference map is shown in figure below.Properties of Indifference Curve Introduction: .R. So basically it explains consumer behavior in terms of his preferences or rankings for different combinations of two goods say X and Y.” For example in below figure of indifference curve Ujim is the indifference curve that is the locus of points in which there are two points A and B showing the combination of the two goods that are Qshirts and Qbats between which the consumer is different. Such a diagram is known as indifference map.sparknotes.gif) XIDAS.. Indifference curve is a graph. Example of indifference map (source-img. Jabalpur 2 . “An indifference schedule is a list of combinations of two commodities. Indifference curve analysis measures utility ordinally.com/. Allen in an article “a reconsideration of the theory of value”.D. But when there are a number of indifferences curves are further away from the origin represent higher level of satisfaction as they have larger combination of items...com/.G. preferring none of the other product.gif) A single indifference curve concerns only one level of satisfaction. It is a curve that shows different combinations of the two goods producing the same level of utility to the consumer is known as an indifference curve. Example of indifference curve (source-img.Indifference curve analysis is one of the important theories of managerial economics. It is a geometrical device developed by J.Hicks and R. the list being so arranged that a customer is indifferent to the combinations.sparknotes./utility.. So indifference curve is drawn from the indifference schedule of the customer./utility.

That if the quantity of one commodity decreases.econport.There are mainly four properties of indifference curve.Properties of Indifference Curve Properties of indifference curve: . So both the implications of negative slope of indifference curve are fulfilled XIDAS.org/images/graphs/CobbDouglas1. According to Hicks. But again at the same time the both commodity X and Y are substituting for each other and satisfaction level of both at the same time remains same. quantity of other must increase so that the consumer stays at the same level of satisfaction.” The negative slope of an indifference curve implies • • That the two commodities can be substituted for each other. Jabalpur 3 . clearly the indifference curve is moving downward. the indifference curve must slope downward to the right. Downward slope of indifference curve Source-www. Again we can say that if X is increasing then Y is decreasing and if Y is increasing then X is decreasing that is implication of negative slope of indifference curve. An indifference curve has a negative slope that means it slopes downwards. 1.gif In the above figure. “so long as each commodity has a positive marginal utility.

• • The two commodities are imperfect substitution for one another. The convexity of the indifference curve implies two properties. the two commodities are not making the perfect substitution for one another. Indifference curves are convex to origin This property tells that indifference curves are not only negatively but are also convex to origin. The marginal rate of substitution between the two goods decreases as a consumer moves along an indifference curve. The postulate of diminishing marginal rate of substitution states a fact that if a consumer substitutes one commodity Convexity of the indifference curve Source-www. The above two features of indifference curve is based on the postulate of diminishing marginal rate of substitution.Properties of Indifference Curve 2.econport. And here the customer is giving up less and less units of Y in order to have equal additional units of X also. XIDAS. Thus an indifference curve analysis is always convex to the origin because the marginal rate of substitution between the two commodities declines.org/images/graphs/CobbDouglas1. Jabalpur 4 .gif If we see the above picture then we can say that clearly the indifference curve is convex to origin.

then at point C where two indifference curves cut each other. Besides if two indifference curves intersect it would mean negation of consistency or transitivity assumption in consumer’s preference.edu/~tbarr/eco61/chapter3/intersecting-indifference-curves.Properties of Indifference Curve 3. XIDAS. • • Those two equal combinations of two goods yield two different level of satisfaction.png) Now if we see the figure above. it will reflect two rather impossible conclusions. Jabalpur 5 . Point B on 2nd indifference curve indicates higher satisfaction comparatively point A on 1st indifference curve due to more distance for the origin but at the same time at point C which lies on the both of the curves yields the same level of satisfaction which is purely absurd because B is preferred to A. indifferences curves can never intersect at any point. Since each indifference curves represents a different level of satisfaction. Indifference curve can neither intersect nor be tangent with one another According to this property if two difference curves intersect or are tangent with one another. Actually such conditions are impossible if the consumer’s subjective valuation of a commodity is greater than zero. Those two different combinations one being larger than the other yields the same level of satisfaction.liu. Indifference curves can’t touch or intersect (Source-http://phoenix.

Clearly U1 is the nearest to the origin and U5 is the most distance from the origin. So in another words a higher indifference curve to the right of another represents a higher level of satisfaction and preferable combinations of two gods. And U1 is providing very less satisfaction. XIDAS. Example of higher level of satisfaction in indifferences curves (Source-http://www. and U5.gov/owcd/eet/CBA/images/CBA_indif. For example in below figure there are five indifference curves U1.Properties of Indifference Curve 4.cdc. So clearly the above figure describes the fourth property of indifferences curve. But again we can not ignore the importance of indifference curve and its properties because it measures utility ordinallly and it explains the consumer behavior in terms of his preferences or rankings for different combination of two commodities. U3 is more satisfactory than U2 and U1 and this property goes on moving ahead and at last U5 is providing more satisfaction than all the other 4 indifferences curves. U4. Upper indifference curves represent a higher level of satisfaction than the lower ones.gif) Conclusion: . U2. U3. Jabalpur 6 .Indifference curves and their properties are one of the important concepts in the field of managerial economics. This property tells us that an indifference curve placed above and to the right of another represents a higher level of satisfaction than the lower one. then U2 is more satisfactory than U1. It has certain limitation like it indicates preferences of consumer only but actual selection of two goods depends upon the income of consumer and price of product.

D.png accessed on February 7. New Delhi Dwivedi. 4. Managerial Economics. Jabalpur 7 .N. Chand & Sons./utility.. 2010 http://phoenix.com/.gif accessed on February 7. 6. K. 2010 www.gif accessed on February 7. J.gov/owcd/eet/CBA/images/CBA_indif. P. Vikash Publishing House (P) Ltd. 7.org/images/graphs/CobbDouglas1. XIDAS. (2008). and Stephen.cdc. Managerial Economics. L.econport. New Delhi http://www. Jhingan. S. (2003). M. (2005). 2010 img.Properties of Indifference Curve References:1.liu. Delhi Mehta.gif accessed on February 7. 5.L.edu/~tbarr/eco61/chapter3/intersecting-indifference-curves.. 2010 3. 2. Vrinda Publication (P) Ltd.sparknotes.. Managerial Economics.

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