Group-3

Economic Presentation
Topic - Indifference Curve
Indifference Curve
Indifference Curve is graphical representation of various alternative
combination of bundle of two goods among which consumer is
indifferent.

For Example-We take combinations P,Q,R,S,T and we take apple and banana as goods so if we
see the table we will observe that for increasing the amount of apple we have to sacrifice
some amount of bananas . We all know that the amount of income of a person is limited so if
we want to increase the number of apple in the limited income we have to sacrifice some
amount of bananas . So it simply means that for increasing the number of apple we have to
reduce the number of bananas and if we increase apple it means that the satisfaction would
also be increased at apple’s side whereas at banana side the level of satisfaction would be
reduced. Ultimately the level of satisfaction would be same . This is only indifference curve.
So let plot the graph of this data:

So if we join the points it would take a convex shape.

Monotonic Preferences
Monotonic Preference means that a rational consumer always
prefer more of a commodity as it offers him higher level of
satisfaction . In simple words, monotonic preference implies
that as consumption increases total utility also increases.

For Example- We gave three option to a consumer which are

(8 apples and 8 banana),(8 apples and 9 banana), and (9
apples and 10 bananas).So according to monotonic
preference a rational consumer would always prefer a bundle
which would have the maximum quantity. So in this case the
maximum quantity to be offered is (9 apples and 10 bananas)
so a rational consumer will prefer this bundle only as it has
the maximum quantity which would give him maximum
satisfaction among all other.
Indifference Map
Indifference Map refers to family of indifference curves that represent consumer
preferences over all the bundles of the two goods. An indifference curve represents all
the combinations, which provide same level of satisfaction. However, every higher or
lower level of satisfaction can be shown on different indifference curves. It means,
infinite number of indifference curves can be drawn.

For Example- We can see in the graph that number of bananas are same but the
number of apples are increasing as we go high in indifference curve . This means
when the indifference curve goes high, the level of satisfaction will also increase
as monotonic preference says.
Marginal Rate Of Substitution (MRS)
MRS refers to the rate at which the commodities can be substituted
with each other, so that total satisfaction of the consumer remains
the same.
MRS = ∆Y
∆X

For Example- If you see the table you will observe that for first gain of one apple the
consumer was ready to sacrifice 5 bananas. Now he have two apple which means consumption
is increased, so according to DMU(Diminishing marginal utility)when the consumption is
increased then the satisfaction is decreased which means that now the satisfaction for gaining
one more apple is slightly decreased. Now in the next line we will see that now for gaining one
apple he is only sacrificing three bananas. We can see that as the consumption is increasing
the satisfaction is decreasing . So now in this case the MRS is decreasing . In simples words
MRS is decreasing due DMU as when the consumer consumes more and more of apple his
marginal utility from apples keep on declining. As a result he is willingly to give up less and
less bananas for each additional apples.
Properties of Indifference Curve
1) Indifference Curves slopes downwards because of
inverse relationship between change in quantities of two
goods.
2) IC is convex shaped due to decreasing MRS (Marginal
Rate Of Substitution).
3) Higher Indifference Curve represents Higher level of
satisfaction.( due to monotonic preference , as we go high
in Indifference Curve the quantity is increasing which
means that total utility will also increase).
4) Indifference curves can never intersect each other
because the level of satisfaction is different . For
intersection there should be a same point but there is no
same point in Indifferent Curve.
 Thank you

Made By Anubhav Goel