Location via proxy:   [ UP ]  
[Report a bug]   [Manage cookies]                
Scribd Logo
Upload

Welcome to Scribd!

  • 24 views

    Indifference Curve

    Uploaded by

    Siva Windriyani
    Indifference curves represent combinations of goods that provide the same level of satisfaction to a consumer. They have a negative slope and are convex, showing that as a consumer increases consumption of one good, they must reduce consumption of another to maintain the same satisfaction. Indifference curves do not intersect, as that would imply different levels of satisfaction could be achieved on different curves. They are based on assumptions of rational consumer behavior who seek to maximize utility subject to budget constraints.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd

    Indifference Curve

    Uploaded by

    Siva Windriyani
    24 views3 pages
    Indifference curves represent combinations of goods that provide the same level of satisfaction to a consumer. They have a negative slope and are convex, showing that as a consumer increases consumption of one good, they must reduce consumption of another to maintain the same satisfaction. Indifference curves do not intersect, as that would imply different levels of satisfaction could be achieved on different curves. They are based on assumptions of rational consumer behavior who seek to maximize utility subject to budget constraints.

    Original Title

    INDIFFERENCE CURVE

    Copyright

    © © All Rights Reserved

    Available Formats

    PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    Indifference curves represent combinations of goods that provide the same level of satisfaction to a consumer. They have a negative slope and are convex, showing that as a consumer increases consumption of one good, they must reduce consumption of another to maintain the same satisfaction. Indifference curves do not intersect, as that would imply different levels of satisfaction could be achieved on different curves. They are based on assumptions of rational consumer behavior who seek to maximize utility subject to budget constraints.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    24 views3 pages

    Indifference Curve

    Uploaded by

    Siva Windriyani
    Indifference curves represent combinations of goods that provide the same level of satisfaction to a consumer. They have a negative slope and are convex, showing that as a consumer increases consumption of one good, they must reduce consumption of another to maintain the same satisfaction. Indifference curves do not intersect, as that would imply different levels of satisfaction could be achieved on different curves. They are based on assumptions of rational consumer behavior who seek to maximize utility subject to budget constraints.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    You are on page 1of 3

    INDIFFERENCE CURVE

    Indifference curves is a curve connecting the points of combinations of consumption (or


    purchases) of goods that result in the same level of satisfaction. Indifference curve shows all
    combinations of consumer choices that provide the same level of satisfaction or utility for a
    person or consumer.

    Indifference Curve Characteristics:


    −Has a negative slope (consumers will reduce the consumption of one good if he increases
    the number of other goods consumed).
    −Convex towards the point of origin, indicating that there is a difference in the proportion of
    the amount that must be sacrificed to change the combination of the amount of each item
    consumed (marginal rate of substitution).
    −Not intersecting, it is impossible to obtain the same satisfaction on a different indifference
    curve.

    Some assumptions that must exist in the ordinal approach in the formation of
    indifference curves that must be obeyed, namely:
    −Rationality, consumers are assumed to be rational, meaning that consumers maximize
    utility with income at certain market prices and consumers are considered to have perfect
    knowledge of market information.
    −Utility is ordinal in nature, meaning that it is enough for the consumer to provide a ranking
    or rating of whichever combination he likes, so that the consumer does not need to provide a
    unit of satisfaction for the goods consumed.
    −Adhering to the law of diminishing marginal rate of substitution means that if consumers
    increase the consumption of one good it will cause a decrease in the consumption of other
    goods and can be described by an indifference curve.
    −Total Utility obtained by consumers depends on the amount of goods consumed.
    −It is consistent and transivity of choice means that if A>B>C then item A is preferred over B
    and item B is preferred over C, the conclusion is that A>B>C then A>C.

    Indifference Curve Shape:


    Indifference Curve Properties
    1. Higher indifference curves are preferred over lower ones
    −Each consumer usually prefers to be able to consume goods in greater quantities.
    −A higher indifference curve represents the availability of more goods than the curve
    below it.

    2. The indifference curve curves downward


    −Consumers are willing to exchange an item if they get more of another item to get
    the same satisfaction.
    −If the quantity of one good decreases, the quantity of another good must increase.

    3. Indifference curves do not intersect (transivity principle)


    −Points A and B provide the same satisfaction for consumers.
    −Points B and C provide the same satisfaction for consumers.
    −This means that points A and C will provide the same satisfaction for consumers.
    −Even though point C contains more goods than point A.
    4. More is better, a lot is preferable to a little

    Indifference curves that are on the right side are preferred, because more is better

    You might also like