Higher Indifference Curves Are Preferred to Lower Ones Consumers will always prefer a higher indifference curve to a lower one. As we know, all combinations of good A and good B that lie on the same indifference curve make the consumer equally happy. If a curve does not have a negative slope as shown in figure 3, it cannot be an indifference curve. Thus, the consumer always prefers a mixture of two consumption bundles which are indifferent to each other, to either one of those bundles. Hence, the marginal rate of substitution of X for Y remains constant. So, higher Indifference curve gives more level of satisfaction than the lower one. If the total satisfaction is to remain the same, the consumer must part with a diminishing number of bananas as he gets as increasing stock of oranges.
Description: Graphically, the indifference curve is drawn as a downward sloping convex to the origin. Indifference curves, like many aspects of contemporary , have been criticized for oversimplifying or making unrealistic assumptions about human action. It means, infinite number of indifference curves can be drawn. This property of the Indifference Curve is derived from the Law of Diminishing Marginal Rate of Substitution. The indifference curve is a boundary line: to the right of the line we have a set of points which are preferred to the set up points to the left of the line. Rational Consumer: The consumer is assumed to behave in a rational manner, i.
Now the consumer compares both and prefers the commodity that gives higher amount of utility. Indifference curve has a negative slope In order to remain on the same level of satisfaction same indifference curve , the consumer must sacrifice one commodity for another. Indifference curve to the right represent higher level of satisfaction The first property tells you that there are infinite indifference curves. They are Convex to the Origin of Axes: The second property of the Indifference Curve is that they are generally convex to the origin of the axes—the left hand portion is normally steep while the right hand portion is relatively flat. The consumer always tends to move to a higher indifference curve seeking for higher satisfaction.
This property shows that any increase in the amount of one commodity is accompanied by a reduction in amount of other commodity. It means that as the amount X is increased by equal amounts that of Y diminish by smaller amounts. According to them, utility is a subjective phenomenon and can never be measured on an absolute scale. Although, they are Falling and Negatively Inclined to the Right: Yet the rate of the fall will not be the same for all Indifference Curves. Let's look at some of these- Economics is the science which studies the way the society choose, utilizing scarce resources in alternative manner to produce goods and services to fulfill the needs of all groups of people.
It means that the consumer to be indifferent to all the combinations on the indifference curves must leave less units of good Y in order to have more of good X. The Axiom of Strict Convexity: If and only if indifference curves are strictly convex, they are smooth. However, in cardinal or marginal utility approach, the utility derived from apple is measured for example, 10 utils. The table given below is an example of indifference schedule and the graph that follows is the illustration of that schedule. We know that consumers in actual world do not generally buy and consume one good. A set of indifference curves is called an indifference map. Here X dominates Y, as does Z.
When stock of good-X increases and good-Y decreases then intensity of of desire on good-X decreases and on good-Y increases. In simple language we can say that Microeconomics is the part of the Economic theory which studies the behavior of individual units i. This is why we get an indifference region rather than an indifference curve. Points like Z and W arc superior and inferior, respectively. The locus of all commodity combinations from which the consumer derives the same level of satisfaction forms such a curve. The meeting of two indifference curves at a point will also lead us to an absurd conclusion. In particular, economists such as Edgeworth, Hicks, Allen and Slutsky opposed utility as a measurable entity.
This means that successive equal reductions in the amount of x 2 are compensated by successive equal increases in the amount of x 1. Substitutes and complements The shape of an indifference curve is helpful to understand whether commodities under consideration are substitutes or complements. This must be so if the level of satisfaction is to remain the same on an indifference curve. An individual can move to higher indifference curves I 1and I 2 until he reaches the saturation point 5 where his total utility is the maximum. In the Fig, two indifference curves are shown cutting each other at point C. Indifference curve refers to the graphical representation of various alternative combinations of bundles of two goods among which the consumer is indifferent. When the man drinks 12 cup of coffee, he consumes 1 cigarette every day.
The convexity rule implies that as the consumer substitutes X for Y the marginal rate of substitution diminishes. However, every higher or lower level of satisfaction can be shown on different indifference curves. The answer must be a definite. This is supposed to be a common feature of consumer preferences. Table: Indifference schedule Combination Mangoes Oranges A 1 14 B 2 9 C 3 6 D 4 4 E 5 2.
It means less and less units of good-Y must be sacrificed to gain an additional unit of good-X. An indifference curve is the locus of all the points, representing different combinations, that are equally satisfactory to the consumer. Article shared by : We may now examine the implications of the axioms in the context of the properties of indifference curves. The non-satiation assumption has two important consequences for the nature of indifferent sets. The so-called lexicographic ordering satisfies assumptions 1 to 4, but each of its indifference sets consist of only one point Fig. If bundle A has more goods than bundle B, then the consumer prefers bundle A to B.