An indifference curve is a graph showing combination of two goods that give the consumer equal satisfaction and utility. Indifference curves 510 slope of indifference curves. Indifference curve free download as powerpoint presentation. Allen in an article a reconsideration of the theory of value. We begin the study of the economic behavior of the consumer by examining tastes. This implies that the slope of the indifference curves increases. The indifference curve um has four points labeled on it. Indifference curve analysis 1 indifference curve analysis 1. Rational consumers according to this theory, a consumer always behaves in a rational manner, i.
Ordinal utility and indifference curves scientific metrics. Examples of indifference curves kent state university. Bain prefers all the combinations on indifference curve b to those on curve a, and she regards each of the combinations on indifference curve c as inferior to those on curves a and b. Jun, 2017 in this video, arizona state universitys professor joana girante will show you how to graph an indifference curve. Jun 02, 2017 most generally and assuming youre referring to a utility map, it helps us understand the combinations of goods that lead to various levels of utility and most importantly helps us understand which combination maximizes utility subject to a bud. According to it when a consumer is presented with a number of various combinations of goods, he can order or rank them in. Consumer equilibrium refers to a situation, in which a consumer derives maximum satisfaction, with no intention to change it and subject to given prices and his given income. This document is highly rated by class 11 students and has been viewed 3787 times. Indifference curve analysis ppt linkedin slideshare.
In economics, an indifference curve connects points on a graph representing different quantities of two goods, points between which a consumer is indifferent. The indifference curve is a graph showing the different combinations of two goods that report the same satisfaction to a person, and are preferred to other combinations. The indifference curve approach managerial economics. Read this article to learn about the meaning, property and assumption of indifference curve. The food stamps problem 2 indifference curve a collection of points for which the consumer is indifference between. Browse more topics under theory of consumer behavior. The indifference curve shows the different combinations of two goods that give equal satisfaction and utility to the consumers. Allen in their research paper, a reconsideration of the theory of value. The indifference curve is a geometrical device developed by j. The indifference curve analysis was developed by the british economist francis ysidro edgeworth, italian economist vilfredo pareto and others in the first part of the 20th century. Indifference curves and marginal rate of substitution video khan. This implies that the slope of an indifference curve decreases in absolute terms as we move along the curve from the left downwards to the right. Preferences are ranked in terms of indifference curves, which are assumed to be convex to the origin.
Cbse issues sample papers every year for students for class 12 board exams. It depicts the complete picture of a consumers preferences. Meaning an indifference curve is a graphical presentation of locus of all such points which shows different combinations of two commodities which gives equal satisfaction to the consumer indifference set it is set of combination of two commodities which offer a consumer the same level of satisfaction. Business economics notes pdf, paper bba, bcom 2020. Ive been drawing my indifference curves to look something like this. If indifference curves are strictly concave to the origin, the optimal bundle, e. When the goods are easy to substitute for each other, the indifference curves are less bowed when the goods are hard to substitute, the indifference curves are very bowed. The point of maximum satisfaction is achieved by studying indifference map and budget line together. The contours of a utility function are called indifference curves, so named because each indifference curve shows all combinations 3 be sure you understand this last point very well. Ppt indifference curve analysis powerpoint presentation. An indifference curve depicts various combinations of two goods, which give the same level of satisfaction or utility to the consumer. The slope of the indifference curve is called the marginal rate of substitution of the commodities. Theory by ariel rubinstein it is available free on his website. The utility function defines the level of utility or satisfaction as a function of the quantities of commodities consumed.
This approach assigns an order to consumer preferences rather than measure them in terms of money. Since an indifference curve represents a set of choices that have the same level of utility, lilly must receive an equal amount of utility, judged according to her personal preferences, from two books and 120 doughnuts point a, from three books and 84 doughnuts point b. The shape of an indifference curve tells us about the consumers willingness to trade one good for the other. When one arrives at two options that are indifferent to the individual, these two points that represent them are on the same indifference curve. On an indifference map, higher indifference curve represents a higher level of satisfaction than any lower indifference. Consumers tastes can be related to utility concepts or indifference curves. What is the importance of the indifference curve analysis. This may well explain the oft found stickiness in adjustment to. They were of the opinion that utility is a psychological phenomenon and it is next to impossible to measure the utility in absolute terms.
Scribd is the worlds largest social reading and publishing site. Indifference curves given the three basic assumptions disussed in the previous section, a consumers tastes and preferences can be indicated by means of an indifference curve. The optimal consumption combination is e 1 on indifference curve u 1. Developed by the irishborn british economist francis y. Since more is better, an indifference curve cannot have a positive slope. Discuss the links between the indifference curve, price. Indifference curve analysis utility economic theories. Examples of indifference curves apples and bananas \ a b 1 5 7 2 4 3 8 6 i2 i1 examples of indifference curves apples and bananas \ a b 1 5 7 2 4 3 8 6 i2 i1 i3 examples of indifference curves more to come done the basic model of utility maximization some applications to indifference curve we continue this topic in the next. In microeconomics, the indifference curve analysis is an important analytical tool in the study of consumer behaviour. The theory of indifference curves was developed by francis ysidro edgeworth, who explained in his 1881 book the mathematics needed for their drawing. The ordinal utility theory or the indifference curve analysis is based on four main assumptions. Indifference curve, in economics, graph showing various combinations of two things usually consumer goods that yield equal satisfaction or utility to an individual. Cbse class 12 economics worksheet indifference curve.
Download cbse class 12 economics worksheet indifference curve in pdf, questions answers for economics, cbse class 12 economics worksheet indifference curve. Understanding consumers equilibrium by indifference curve. Indifference curves for normal goods, substitutes and perfect complements. Discuss the links between the indifference curve, price elasticity estimates and the theory of supply and demand in economics. Curves that are higher and to the right are preferred to those that are lower and to the left. Derivation of demand curve in the case of a single commodity law of. Different concepts of demand, demand curve, determinants of demand, law of demand, demand forecasting methods, market equilibrium, concepts. An indifference curve gets flatter as we move right along the curve. It implies that the consumer is capable of simply comparing different levels of satisfaction.
May 06, 2020 chapter indifference curve chapter notes, micro economics, class 12 edurev notes is made by best teachers of commerce. Utility theory from jeremy bentham to daniel kahneman. A higher indifference curve depicts a larger amount of satisfaction than a lower one because it represents a greater quantity of good x or y or more of both x and y. A given price line should be tangent to an indifference curve or marginal rate of satisfaction of good x for good y mrs xy must be equal to the price ratio of the two goods. This is based on consumer preference and believes that we cannot quantitatively measure human satisfaction in monetary terms.
In general, there is an indifference curve through any point in xy space. Chapter indifference curve chapter notes, micro economics. With the constraint of budget line, the highest indifference curve, which a consumer can reach, is ic 2. A popular alternative to the marginal utility analysis of demand is the indifference curve analysis. Thus the basis of indifference curve approach is the preference indifference hypothesis. Any combination lying on this curve gives the same level of consumer satisfaction. Doc criticisms of indifference curve analysis antony. Indifference curve adopted the concept of ordinal utility instead of cardinal utility. To show the relationship between utility functions, indifference curves, and total utility curves. Each point on an indifference curve indicates that a consumer is indifferent between the two and all points give him the same utility. Thus the consumers equilibrium under the indifference curve theory must meet the following two conditions. Theory of ordinal utilityindifference curve analysis.
An individual is better off when he or shes on an indifference curve that lies farther up and to the right. Share your knowledge share your word file share your pdf file share your ppt file. Modern economists disregarded the concept of cardinal measure of utility. As indifference curve theory is based on the concept of diminishing marginal rate of substitution, an indifference curve is convex to the origin. Consumers equilibrium through indifference curve analysis. Within the theory of consumer choice that investigates the behavior of an economic agent as a consumer of goods and services, there is an extremely useful tool to facilitate the analysis of the consequences of price variations. Shell also introduce you to marginal rates of substitution dont worry. An indifference curve defines the substitution between goods x and y that is acceptable in the mind of the consumer. This implies that the indifference curves should designate a reference point at the. In other words, if the decisionmaking context for an individual remains constant on both monday and tuesday, then a consumer will have the same order of preference on tuesday as on monday. Indifference curve analysis can be used to show why the demand curve usually. Indifference curve analysis and its properties pdf download. Conversely, we can also assume, from the individuals choice, that because a bundle is chosen, it must be on that highest indifference curve the principle of revealed preference. Indifference curve utility economic theories free 30.
If you continue browsing the site, you agree to the use of cookies on this website. Refer to the diagram above where xy is the relevant budget line and i 1, i 2, and i 3 are indifference curves. According to the indifference curve approach, it is not possible for the. The budget line is tangent to indifference curve ic 2 at point e. Thus, the tradeoff between the goods that the individual is willing to undertake mrs. It is assumed that individuals are rational in making decisions from their expenditures on consumer goods. Indifference curves 8142016 10nhu 501 dr n r kidwai, jit barabanki indifference curves have the following properties.
Aug 23, 2018 apr 21, 2020 consumers equilibrium through indifference curve analysis class 11 notes edurev is made by best teachers of class 11. This is the point of consumer equilibrium, where the consumer purchases om quantity of commodity x and on quantity of. That is, any combinations of two products indicated by the curve will provide the consumer with equal levels of utility, and the consumer has no preference for one combination or bundle of goods over a different combination on the same curve. Indifference curve theory assumes that preferences will be consistent, given the same information and constraints.
What is the importance of the indifference curve analysis in. Explain consumers equilibrium with the help of indifference. It has been used to replace the neoclassical cardinal utility concept. Here, indifference curve b is preferred to curve a, which is preferred to curve c. When price of x p xfalls, to say op 1, the budget constraint shift to ab 1. An indifference curve represents various combinations or bundles of two goods or services that provide the same amount of satisfaction to the consumer. An indifference curve represents a series of combinations between two different economic goods, between which an individual would be theoretically indifferent regardless of. This approach also explains the consumers equilibrium who is confronted with. Edgeworth, it is widely used as an analytical tool in the study of consumer behaviour, particularly as related to consumer demand. An indifference map, is collection of indifference curves corresponding to different levels of satisfaction. This document is highly rated by commerce students and has been viewed 33223 times.
In other words, the indifference curve is the graphical representation of different combinations of goods generally two, for which the consumers are indifferent, in terms of the overall satisfaction and the utility. Definition an indifference curve is a curve which shows all the combinations of two products. Indifference curve analysis free download as powerpoint presentation. Ordinal theory is also known as neoclassical theory of consumer equilibrium, hicksian theory of consumer behavior, indifference curve theory, optimal choice theory. Jan 12, 2018 as indifference curve theory is based on the concept of diminishing marginal rate of substitution, an indifference curve is convex to the origin. An indifference curve represents a series of combinations between two different economic goods, between which an individual. An indifference map is a set of indifference curves. Theory of demand supply, price elasticity, indifference. The slope of the indifference curve is known as the marginal rate of substitutionmrs. Most generally and assuming youre referring to a utility map, it helps us understand the combinations of goods that lead to various levels of utility and most importantly helps us understand which combination maximizes utility subject to a bud.
Meaning, definition, assumptions and properties of the indifference curve, consumers equilibrium, budget line. The indifference curve theory is based, thus, on the axiom of diminishing. Dont the theories of diminishing marginal utility and monotonic preferences go against each other, in a sense. Exam 20, questions and answers consumer theory studocu. Introduction to indifference curves and budget lines. The indifference curve analysis retains some of the assumptions of the cardinal theory, rejects others and formulates its own. At the optimum, the indifference curve is tangent to the budget constraint so their slopes are equal. Applied microeconomics consumption, production and markets this is a microeconomic theory book designed for upperdivision undergraduate students in economics and agricultural economics. Although only three indifference curves are shown in figure 7. Indifference curves have a negative slope, and in special cases zero slope. For the love of physics walter lewin may 16, 2011 duration. To show how indifference curves are constructed let us take the example of a. B c i4 a the theory of consumer choice 15 four properties of indifference curves quantity of fish quantity of mangos hurley is willing to give up more mangos for a fish if he has few fish a than if he has many b. The assumptions of the ordinal theory are the following.
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