An indifference curve is a graphical representation of the different combinations of two goods that a consumer is willing to accept as being equally preferred. In other words, an indifference curve shows the different bundles of two goods that a consumer is indifferent between, meaning that the consumer would be equally satisfied with any of the combinations on the curve.
Indifference curves are typically used to represent a consumer's preferences in a two-good consumption space, where one good is plotted on the x-axis and the other good is plotted on the y-axis. The consumer's willingness to pay for each good is represented by the slope of the indifference curve, with a higher slope indicating a higher willingness to pay for the good on the y-axis.
Indifference curves have several important properties. First, they are downward sloping, meaning that as the quantity of one good increases, the quantity of the other good must decrease in order for the consumer to remain indifferent between the two combinations. This is because as the quantity of one good increases, the consumer's willingness to pay for the other good decreases.
Second, indifference curves cannot intersect, as this would imply that the consumer is indifferent between two combinations that have the same quantities of both goods, which is impossible.
Finally, indifference curves are convex to the origin, meaning that they have a bowed shape when plotted on a graph. This reflects the idea that as the consumer's consumption of one good increases, the consumer's marginal rate of substitution (the rate at which the consumer is willing to give up one good in exchange for the other) decreases.
In economics, indifference curves are often used to represent a consumer's preferences and to analyze consumer behavior in different market situations. For example, economists may use indifference curves to analyze how a consumer's consumption changes in response to a change in the price of one of the goods, or to analyze the consumer's optimal consumption choices given their budget constraint.
Indifference Curve: Definition, Indifference Map, MRS, Examples etc.
ADVERTISEMENTS: On the other hand, if the price of apple becomes very high he may be forced by lack of means to give up apple. The Budget Price Line: In search for higher utility, the consumer faces a constraint — a limited budget or income. A combination of OA units of product X, and OB units of product Y, yields exactly as much satisfaction to the consumer as does the combination of OC units of product X and OD units of product Y. If the increase in income due to price change is enough to compensate the loss of the losers and makes at least one person better off, there is an improvement in social welfare. The combination B includes more quantities of both the commodities than the combination A. The indifference curve I 1 is the locus of the points L, M, N, P, Q, and R, showing the combinations of the two goods X and Y between which the consumer is indifferent.
What is Indifference Curve? definition, assumptions and illustratuon
All combinations that are within his reach lie on the budget line. On the other hand, if the price of apple becomes very high, he may be forced by lack of means to give up apple. The quantities of the two commodities in combination C are more than in combination B. For example- A farmer gives his cattle in exchange for some land, and so on. At the equilibrium point P, the slope of IC 2, is the same as the slope of AB. ADVERTISEMENTS: Point A lies on both I 1, and I 2.
Indifference curve financial definition of indifference curve
In both parts, the horizontal axis shows the quantity of apple which will be bought, but in the bottom part of the diagram, the vertical axis shows the price of apples. The graph shows a combination of two goods that the consumer consumes. There may be many other such combinations. Similarly, for subsequent exchanges, the MRS is 2 and 1 respectively. Indifference curves assume that individuals have stable and ordered preferences and seek to maximize their utility. Framed by a committee of elite central bankers, the accord provides the guidelines for prudent supervision of banks all over the world and sets the standard for such supervision.
Indifference Curve: Meaning, Definition, Features, Indifference Map
Definition: According to the indifference curve approach, it is not possible for the consumer to say how much utility he derives from the consumption of a commodity, because utility is not a measureable magnitude. If a series of community indifference curves is shown such that higher the indifference curve, higher is the level of satisfaction from combinations lying upon it and vice-versa, that series of social indifference curves represents the community indifference map, which is shown in Fig. Thus, the indifference curve is convex to the origin. But a consumer can compare two or more combiÂnations of goods and say which of them he likes best or whether he likes them all equally well. The below diagram shows an indifference map with three indifference curves. There are, at the same time, several theorists who raised certain objections against their use.
