An indifference curve is a graph that represents the different combinations of two goods that give an individual the same level of satisfaction or utility. In other words, an indifference curve shows the different bundles of goods that a person is indifferent between, as they all provide the same level of utility or satisfaction to the individual.
The slope of an indifference curve, also known as the marginal rate of substitution, represents the rate at which an individual is willing to trade one good for another in order to maintain the same level of utility. In other words, it represents the amount of one good that an individual is willing to give up in exchange for a certain amount of the other good.
For example, consider an individual who has a preference for apples and bananas. The individual may be willing to give up two apples in exchange for one banana, in order to maintain the same level of satisfaction. In this case, the slope of the indifference curve would be -2, as the individual is willing to give up two units of the good on the x-axis (apples) in exchange for one unit of the good on the y-axis (bananas).
It is important to note that the slope of the indifference curve depends on the individual's preferences and the relative scarcity of the goods being traded. For example, if apples are relatively more scarce than bananas, the individual may be less willing to give up apples in exchange for bananas, and the slope of the indifference curve would be less steep. On the other hand, if apples are relatively more abundant, the individual may be more willing to give up apples in exchange for bananas, and the slope of the indifference curve would be steeper.
In summary, the slope of the indifference curve represents the rate at which an individual is willing to trade one good for another in order to maintain the same level of satisfaction or utility. It depends on the individual's preferences and the relative scarcity of the goods being traded.
Indifference Curve Flashcards
It follows, therefore, that there are more than one combinations of apple and orange which are equally satisfactory to him. Suppose there is an increase in quantity demanded from 4 coffees to 6 coffees. Therefore, we can imply that B and C offer the same level of satisfaction, which is logically absurd. In the above figure, AB is a budget line tangent to IC curve at point E. In the following figures, fig. Mid-point gives an average of elasticities between two points, whereas point-slope gives the elasticity at a certain point.
Top 6 Properties of Indifference Curve (With Diagram)
Basically on the amount of that good that has consumed the individual. For example, if Bob has already fished a lot in one week, he will be less willing to give up an hour of fishing for an hour of hunting than if he has only fished a little that week. Natural Events Last evening, while you were painting, a big storm hit the city and caused a blackout. If the consumer is at a point on his consumption-possibility line where it crosses an indifference curve such as N in Fig. This is the logic of the law of demand. When the consumer increased the consumption of commodity X to X2, the amount of commodity Y fell to Y2.
Understanding the Supply Curve & How It Works
Change in Cost of Production What would you do if suddenly, the price increases for the oil paint you use to make your paintings? Provided by: Marginal Revolution University. Suppose the price of an ounce of tea is 2 cigarettes and the price of an ounce of coffee is 1 cigarette. The indifference curve, on the other hand, measures the optimal ways consumers use goods. A higher income shifts the budget line outward without changing its slope. Since an infinite number of indifference curves exist, even if only a few of them are drawn on any given diagram, there will always exist one indifference curve that touches the budget line at a single point of tangency. At point C, however, Lilly has many books and few doughnuts. Sarah's indifference curve would be steeper than Diana's indifference curve.
