Indifference Curves
PROPERTIES OF INDIFFERENCE CURVES
An indifference curve shows all combinations of two goods which yield the same level of utility or satisfaction to the consumer. An indifference curve shows combination of goods between which a person is indifferent. In other words, an indifference curve is the locus of all commodity bundles that gives a consumer same level of satisfaction.
The main attributes or properties or characteristics of indifference curves are as follows:
(1) Indifference curves are negatively sloped. The indifference curves must slope down from left to right. This means that an indifference curve is negatively sloped. It slopes downward because as the ‘consumer increases the consumption of X commodity, he has to give up certain units of Y commodity in order to maintain the same level of satisfaction.
.(2) A higher indifference implies more level of satisfaction. A higher indifference curve that lies above and to the right of another indifference curve represents a higher level of satisfaction and combination on a lower indifference curve yields a lower satisfaction.
In other words we can say that the combination of goods which lies on a higher indifference curve contains all along its length larger quantity of goods than the lower one.
U3 greater amount of satisfaction as it contains more of both goods than U2 and U1. (U3 > U2 > U 1 ) .
(3) Indifference curves are convex to the origin. This is an important property of indifference curves. They are convex to the origin (bowed inward). This is equivalent to saying that as the consumer substitutes commodity X for commodity Y, the marginal rate of substitution diminishes of good X for good Y along an indifference curve.
In this figure (3.6) as the consumer moves down, the willingness to substitute good X for good Y diminishes.
Marginal Rate of Substitution (MRS of x1 for x2) = is the amount of x2 that the consumer is willing to give up to get an additional unit of x1 to maintain the same level of utility.
(4) Indifference curves are nonintersecting.
It follows from Transitivity and non-satiety assumptions. In the following graph in ZONE ! d is preferred to e since it lies on a higher IC but in ZONE II c is preferred to b since c lies on a higher IC at the same time d and b lies on the same IC implying same level of satisfaction. This contradiction proves that two IC’s cannot intersect.
