PPT On INDIFFERENCE CURVE
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INDIFFERENCE CURVE Presentation Transcript:
1. DEFINITION: IC
An Indifference curve (IC) is the locus of all those combination of two goods which give the same level of satisfaction to the consumer.
Thus consumer is indifferent towards all the combinations lying on the same indifference curve. In other words, consumer gives equal preference to all such combinations.
2. MARGINAL RATE OF SUBSTITUTION (MRS)
The marginal rate of substitution of X for Y (MRSxy) is defined as the amount of Y, the consumer is just willing to give up to get one more unit of X and maintain the same level of satisfaction.
3. DIMINISHING MARGINAL RATE OF SUBSTITUTION
As the consumer increases the consumption of apples, then for getting every additional unit of apples, he will give up less and less of oranges, that is, 8:1, 4:1, 2:1, 1:1 respectively This is the Law of Diminishing MRS.
4. ASSUMPTIONS OF IC ANALYSIS
(a) Non Satiety
(b) Transitivity
(c) Diminishing Marginal Rate of Substitution
(d) Two Commodities
(e) Ordinal Utility
(f) Positive Marginal Utilities
(g) Divisibility
(h) Rationality
5. PROPERTIES OF IC
1. An Indifference curve has negative slope i.e. it slope downwards from left to right.
2. Indifference curve is always convex to the origin. This implies that two goods are imperfect substitutes and MRS between two goods decreases as a consumer move along an indifference curve. IC will be straight line if MRS is constant and L shaped in case of Complimentary.
6. PROPERTIES OF IC
3. Two Indifference curves never intersect or become tangent to each other.
This will violet the rule of Transitivity because: on IC1 A is equally preferred to B and on IC2 A is equally preferred to C.
This implies B is equally preferred to C, which can not be because more is always preferred to less.
7. PROPERTIES OF IC
4. Higher indifference curve represents higher satisfaction.
This is because the combinations lying on higher indifference curve contain more of either one or both goods and more is always preferred to less.
8. PROPERTIES OF IC
5. Indifference curve touches neither X-axis nor Y-axis (By Definition)
9. Thank You.
Download
INDIFFERENCE CURVE Presentation Transcript:
1. DEFINITION: IC
An Indifference curve (IC) is the locus of all those combination of two goods which give the same level of satisfaction to the consumer.
Thus consumer is indifferent towards all the combinations lying on the same indifference curve. In other words, consumer gives equal preference to all such combinations.
2. MARGINAL RATE OF SUBSTITUTION (MRS)
The marginal rate of substitution of X for Y (MRSxy) is defined as the amount of Y, the consumer is just willing to give up to get one more unit of X and maintain the same level of satisfaction.
3. DIMINISHING MARGINAL RATE OF SUBSTITUTION
As the consumer increases the consumption of apples, then for getting every additional unit of apples, he will give up less and less of oranges, that is, 8:1, 4:1, 2:1, 1:1 respectively This is the Law of Diminishing MRS.
4. ASSUMPTIONS OF IC ANALYSIS
(a) Non Satiety
(b) Transitivity
(c) Diminishing Marginal Rate of Substitution
(d) Two Commodities
(e) Ordinal Utility
(f) Positive Marginal Utilities
(g) Divisibility
(h) Rationality
5. PROPERTIES OF IC
1. An Indifference curve has negative slope i.e. it slope downwards from left to right.
2. Indifference curve is always convex to the origin. This implies that two goods are imperfect substitutes and MRS between two goods decreases as a consumer move along an indifference curve. IC will be straight line if MRS is constant and L shaped in case of Complimentary.
6. PROPERTIES OF IC
3. Two Indifference curves never intersect or become tangent to each other.
This will violet the rule of Transitivity because: on IC1 A is equally preferred to B and on IC2 A is equally preferred to C.
This implies B is equally preferred to C, which can not be because more is always preferred to less.
7. PROPERTIES OF IC
4. Higher indifference curve represents higher satisfaction.
This is because the combinations lying on higher indifference curve contain more of either one or both goods and more is always preferred to less.
8. PROPERTIES OF IC
5. Indifference curve touches neither X-axis nor Y-axis (By Definition)
9. Thank You.
