Four Properties of Indifference Curves India Dictionary

She is thus willing to surrender 2 days of snowboarding for a second day of horseback using. Explain the three properties of the indifference curves. Samaira gains satisfaction from having 1 unit of food and 12 units of books. Examine the effect of fall in the own price of good X and rise in tax rate on good X, on the supply curve. Indifference curves are widely used in microeconomics to analyze consumer preferences, the effects of subsidies and taxes, and a few other concepts.

• Also if indifference curves intersects Law of Transitivity and indifference law will contradict each other.
• The above diagram shows the U indifference curve showing bundles of goods A and B.
• IC2is upper indifference curve denoting higher satisfaction.
• As he goes on obtaining more and more of X, MU of X starts declining so he will sacrifice less and less of good Y.

The MRS or Marginal Rate of Substitution can be defined as the rate at which a consumer is prepared to exchange a product, M for another product, N. To understand this, let’s take a close look at Samaira’s situation. Assuming other things remain constant, the levy of a tax on Good X shows a negative relationship with the supply of a good. When there is a tax on a good, the cost of production increases and decreases the profit of the producer.

As we already learned above, consumers always prefer larger quantities. Therefore it is impossible for both curves to provide the same level of satisfaction, which means they can never intersect. Indifference curves never touch or intersect each other Each Indifference curve represents a different level of satisfaction. Also if indifference curves intersects Law of Transitivity and indifference law will contradict each other. For instance,in the graph showing the indifference curve is convex to the origin. It signifies that the marginal rate of substitution of rice for wheat is declining.

Previous YearsExamination Questions

The figure above, consisting of three Indifference Curves, speculates the view that a consumer is indifferent to the combinations of products on the same Indifference Curve. Also, a consumer, say Samaira, would prefer the combinations on the higher Indifference Curve to the ones on the lower curves. A higher Indifference Curve indicates higher levels of satisfaction – combinations on IC2 yield greater satisfaction than those on IC1.

If in case, any indifference curve touches the axis, it implies that only one commodity is consumed by the consumer and demand for other commodity is zero. It may touch Y-axis if Y-axis represents money instead of a commodity. An indifference curve is generally convex to the point of origin. In other words, the indifference curve connects the points on a graph where a consumer is indifferent to buy two commodities.

What are the applications of indifference curve analysis?

We know that the four properties of indifference curve utility of consuming an excellent decreases as its provide will increase . Solutions for Explain the three properties of indifference curves? In English & in Hindi are available as part of our courses for Commerce.

• Therefore, he will be willing to sacrifice less unit of Y.
• To understand why this is the case, we can look at what would happen if they did intersect.
• Another fact is that there are no intersections between any sorts of pairs of Indifference Curves.
• If the marginal rate of substitution of different points decreases at a constant rate, then curves are parallel to each other, otherwise, they are not parallel.

Here you can find the meaning of Explain the three properties of indifference curves? Besides giving the explanation of Explain the three properties of indifference curves? Has been provided alongside types of Explain the three properties of indifference curves? Theory, EduRev gives you an ample number of questions to practice Explain the three properties of indifference curves?

IC need not be parallel to each other:

The marginal determination rule says that if a further unit of an exercise yields greater benefit than its cost, it ought to be pursued. She is spending all of her finances, but she is not maximizing utility. The analysis of an Indifference Curve can be carried out on a simple two-dimensional graph. Upper indifference curves indicate higher level of satisfaction.

An trade of two days of skiing for one day of horseback using would go away her at point T, and she or he could be as nicely off as she is at level S. Her marginal rate of substitution between points S and T is 2; her indifference curve is steeper than the budget line at point S. She can be prepared to surrender as many as 2 days of skiing to achieve an additional day of horseback riding; the market demands that she hand over just one. An indifference curve is a graph that shows a combination of two goods that give a consumer equal satisfaction and utility, thereby making the consumer indifferent. Indifference curves are heuristic devices used in contemporary microeconomics to demonstrate consumer preference and the limitations of a budget.

She is also satisfied with 2 units of food and 6 units of books. A decline in the own price of Good X shows a positive relationship with the supply of good. When the price declines from P1 to P2, there will be contractionof supply from Q1 to Q2. The exam was held from 21 February 2023 to 16 March 2023. The UGC NET CBT exam pattern consists of two papers – Paper I and Paper II. Paper I consists of 50 questions and Paper II consists of 100 questions. The candidates who are preparing for the exam can check the UGC NET Previous Year Papers which helps you to check the difficulty level of the exam.

Indifference curves can never touch or intersect each other. Indifference curves slope downwards from left to the right.

Indifference Curve

Figure 7.9 “The Marginal Rate of Substitution” reveals indifference curve C from Figure 7.eight “Indifference Curves”. Higher indifference curve show higher level of satisfaction. Most of the products, the books and the food, are really very flawed substitutes for one another. If these could be substituted perfectly, the MRS would remain the same.

Indifference curves is convex to the point of origin because of diminishing Marginal Rate of Substitution. Indifference curve shows the different combinations of two commodities offering the same level of utility to the consumer. A higher curve means a higher level of satisfaction, in contrast to a lower curve. If two products are perfect complements of each other, say a phone and a tablet, then in such a case, the curve is L-shaped and convex to the origin. Samaira’s indifference can be analyzed with the following graphical representation of her Indifference Curve.

An indifference curve which is to the right and above another shows a higher level of satisfaction to the consumer. Here, IC3 shows higher level of satisfaction than IC2. Thus, the indifference curve relates to a higher level of income of the consumer. In fig, IC1,IC2and IC3 show different combinations of rice and wheat by a consumer. Each curve represents the same level of satisfaction. These curves are not parallel to each other as it all depends upon the marginal rate of substitution of curves.

If two curves intersect each other at a point, it implies that both curves contain the same level of satisfaction at that point which is not logical. It is the maximum quantity of 1 good a client is keen to surrender to acquire an additional unit of one other. Here, it is the number of days of skiing Janet Bain would be keen to give up to obtain an extra day of horseback using. Notice that the marginal price of substitution declines as she consumes increasingly more days of horseback riding. The optimum portions consumed will be that combination of X and Y that puts the person on the highest possible indifference curve—that’s, quantities X0and Y0on the above Figure.

As the consumer substitutes commodity X for commodity Y, the marginal price of substitution diminishes as X for Y alongside an indifference curve. This is because of the assumption that if the consumer decides to have more of one commodity, he must consume less quantity of others. Then, only he can get equal satisfaction from their different combinations.

Note According to Law of Transitivity if a consumer prefer bundle A over bundle B, and bundle B over bundle C, then he will indirectly prefer bundle A over bundle C. Indifference curves do not touch the horizontal or vertical axis. Therefore consumers are keen to give up extra of this good to get one other good of which they have little. If a consumer has plenty of good B, the MRS is three items of good B per unit of fine A. If she has extra of fine A, the MRS is zero.5 units of good B per unit of excellent A.

4.Indifference Set It is a set of those combination of two goods which offer the consumer the same level of satisfaction. So that, the consumer is indifferent across any number of combination in his indifference set. The following indifference set shows the different combinations of wheat and rice that yield customer equal satisfaction. She will continue exchanging skiing for horseback driving till she reaches point X, at which she is on curve A, the best indifference curve potential. The slope of the indifference curve is crucial to marginal fee of substitution evaluation. At any given level alongside an indifference curve, the MRS is the slope of the indifference curveat that time.

Purchasing only one commodity means monomania that is consumers’ lack of interest in the other commodity or his insistence on purchasing only one commodity. Suppose Ms. Bain is at point S, consuming four days of snowboarding and 1 day of horseback using per semester. This extra day of horseback riding doesn’t have an effect on her utility if she offers up 2 days of skiing, moving to point T.

In fig, IC2 is higher and IC1 is a lower indifference curve. Point B on IC2curve represents more units of rice than point A on IC1.Although the units of wheat remain same in both combinations. Hence, point B represents more satisfaction than point B. Thus, a higher indifference curve implies higher satisfaction. Each indifference curve represents a different level of satisfaction, so they cant intersect each other. It is not possible that two curves with different satisfaction levels cut each other at any point.

It is also known as indifference schedule in economics. In other words, if they have lots of good B, they are more keen to trade a few of it in to get an additional unit of excellent A and vice versa. Indifference curves are convex to the origin .The slope of the curve is referred because the Marginal Rate of Substitution. At the utility-maximizing answer, the consumer’s marginal fee of substitution is equal to the worth ratio of the 2 goods.