Indifference curve (IDC)

In indifference curve approach, the basic objective of studying the consumer

behavior remains same as in the last section i.e., achieving consumer’s equilibrium
but here the critical difference is that, the utility is measurable or quantified. It is
assumed that consumer is rational and attempts to maximize utility (the want
satisfying quality in a good) from his spendable income. It is a fact that consumer
make choice from among many goods so as to maximize the satisfaction from their
limited money income. In view of the limitation of cardinal approach, modern
economists developed an alternative technique to examine the consumer’s behavior.
Assumptions:
Good are having substitutes
Rationality of the consumer: the consumer acts rationally in making decisions
regarding the purchase of two commodities under consideration and substitute one
commodity for another, so as to derive maximum satisfaction.
Ordinal measurement of utility: unlike cardinal utility approach, utility cannot be
quantified. Rather, it is expressed ordinally. That means, the utility can be ranked
towards lower to higher.
Two commodities: IDC analysis deals with the two commodities to explain the
consumer’s behavior in deriving maximum satisfaction. Other things being equal,
the consumer always prefers more of one commodity to less of another.
Diminishing marginal rate of substitution (MRS): the principle of diminishing MRS
is assumed, while dealing with the consumption behavior of the consumer with
respect to two commodities under consideration. That means, if the consumer goes
on consuming one commodity, its substitutes less and less of other commodity
The indifference curve analysis based on the assumption of ordinal utility. It
explains the behavior of consumer in terms of his preferences or ranking for different
combinations of two goods. Since the satisfaction derived from the consumption of
various goods cannot be measured objectively, it is enough if the consumer indicates
his preference for the various combination of commodities.
A indifference curve is the locus of the combination of two goods that are
equally satisfactory to the consumer, or to which the consumer is indifferent.
 A diagram showing a set of indifference curves is called indifference map.
An indifference map is graphic device that shows the taste of an individual
consumer. The combination of two goods that lie on the higher indifference curve
always preferred to those that lie on a curve below it.
An indifference curve is derived from an indifference schedule. A list of
various combinations of two goods, arranged in such a way that the consumer is
indifferent to the any of the given combinations is called indifference schedule. A
hypothetical indifference schedule is given below.
Table: Indifference schedule
Combinations X (Rice in Kg) Y (Wheat in Kg)
A 1 20
B 2 15
C 3 11
D 4 8
E 5 6
F 6 5

In the above schedule, the consumer is indifferent weather he buys ‘A’ combination
of 1 Kg of X and 20 Kg of Y or 6 Kg of X and 5 Kg of Y or any other above
mentioned combination yields the same satisfaction to the consumer.
If various combinations are plotted on a graph and are joined by a line, it becomes
indifference curve.
Y
Good Y

O Good X X
Indifference curve
 Y

Good Y

I3
I2
I1

O Good X X

Indiffernce map

Properties of indifference curves

Convex to the origin: the absolute slope of an indifference curve declines as
we move along the curve from left downwards to the right. This means the marginal
rate of substitution of goods is diminishing.
Negatively sloped: an indifference curve has a negative slope which implies
that if the quantity of one good increases, the quantity of other good must be
decreased. This is to keep the consumer on the same level of satisfaction.
Non-intersecting: indifference curve do not intersect with each other. If they
intersect, then the point of intersection would imply same level of satisfaction on
two different curves which is not true.
An indifference curve that lies to the right of other denotes higher utility and
combination of goods on higher difference curve are preferred by the consumer
Limitations
 The consumer is not always rational
 Purely imaginary concept
 Complete knowledge of scale of preferences is immpossible
 Deals with only two commodities
 IDC is micro in its scope