A graphic representation of different combination of two goods which yield the same level of satisfaction to the consumer.

In above example all the four combinations provide same level of satisfaction to consumer therefore consumer becomes indifference as to which combination he should choose. This tendency when shown with the help of a graph is known as indifference curve. On one IC whatever may be the point level of satisfaction will be the same.

PROPERTIES OF INDIFFERENCE CURVE

We note the few properties of indifference curve. 1. 1. Downward Sloping To The Right Or Negatively Slopped:

An indifference curve slopes downwards from left to right. It is because when the consumer decides to have more units of one of the two goods, he will have to reduce the number of units of the another good, if he is to remain on the same indifference curve. Looking at the diagram below:

2. Two Indifference Curve Never Intersect Each Other The second condition of indifference curve is that no two such curves will ever cut each other. It can be explained by the diagram:

In the above diagram C lies on the both indifference curves, which is in turn means that C is equal to both A and B at a time, which represent different level of satisfaction.

3.Convex to the origin Convexity means we use more and more of good X and Y less and less of good Y. The marginal rate of substitution of x for y goods falling. As we see that the marginal rate of substitution (MRS) of many for apples falls while the MRS of mangoes for apples remains constant and MRS of mangoes for apples increase which is not happen in general. Hence it is proved that Indifference Curve is convex to the origin.

4.Higher The Indifference Curve Higher The Level Of Satisfaction: Higher the indifference curve, higher the satisfaction, and lower the indifference curve, lower the satisfaction.

In the diagram on X-axis goods x and on Y-axis good y is taken. IC1, IC2, IC3 is three different ICs. IC1 gives satisfaction, than IC2. In the same way the satisfaction increases as we move on the higher ICs.

Conditions Or Assumptions Of Equilibrium

Consumer is rational and tries to maximize his satisfaction. Income of the consumer is fixed and given. Prices of X and Y are given in the market and consumer cannot change them. Units of X and Y are same in quantity and are not divisible.

Now suppose,

Income of consumer is Rs. 20 Price of commodity X is Rs. 2 and consumer can purchase max. 10 units of X. Price of commodity X is Rs. 1 and consumer can purchase max. 20 units of Y. Consumer budget line is AB. Consumer spends 10 Rs. On purchasing 5 units of X commodity. Consumer spends 10 Rs. On purchasing 10 units of Y commodity. Consumers equilibrium will be on point E where IC2 touches the budget line AB.

Consumers equilibrium can be explained by means of the following diagram.

In graph, IC-3 provides a higher satisfaction but it is above budget line AB and is beyond the reach of a consumer. IC-1 is below the budget line AB and is the lowest one, which provides less satisfaction. AC-1 provides more satisfaction. This curve is also tangent on budget line at E, here the consumer will purchase both X and Y goods and will spend all his income and will obtain maximum possible satisfaction and will be in Equilbirum position.