Meaning of Indifference Curve
Indifference curve is defined as the locus of various combinations of any two goods which yield same level of satisfaction to the consumer. In other words, indifference curve is that curve which is obtained joining the points each representing different combinations of two goods yielding same level of utility or satisfaction. Therefore, a consumer is indifferent between the combinations of goods when s/he has made choice between them. Indifference curve is also known as the iso-utility curve and equal utility curve. The concept of indifference curve was first invented by F.Y. Edgeworth in 1881. Latter, it was fully developed and popularized by J.R. Hicks and R.G.D. Allen in 1934. It is the tool of ordinal utility approach of analysing consumer behaviour. According to A. Koutsoyiannis, "An indifference curve is the locus of points particular combinations or bundles of goods, which yield same utility (level of satisfaction) to the consumer, so that he is indifferent to the particular combination he consumes."In the words of Dominick Salvatore,"An indifference curve shows the various combinations of two goods that give the consumer equal utility or satisfaction."Thus, indifference curve is the locus of different combinations of two goods which represent equal satisfaction or utility.
Assumptions
The concept of indifference curve is based on the following assumptions:
The consumer is rational.
Utility is ordinally measurable.
The marginal rate of substitution diminishes when one commodity is substituted for another.
The consumer does not reach to the point saturation in case of any commodity.
There is consistency and transitivity in choice.
Indifference Map
Indifference map is defined as the set of indifferent curves. In other words, indifference map shows all the indifference curves which rank the preference of the consumer. Higher indifference curve represents higher level of satisfaction because it has combinations of higher quantities of both goods and lower indifference curve represents lower level of satisfaction because it has the combination of lower quantities of both goods. The indifference curve far from the origin is called higher indifference curve and the indifference curve near to the origin is called lower indifference curve.
Properties of Indifference Curve
The properties or features or characteristics of indifference curve are as follows:
1. Indifference curve is negatively sloped:
An indifference curve has negative slope. In other words, indifference curve slopes downward from left to right. It implies that if quantity of one commodity decreases, the quantity of other must increase, if the consumer is to stay on the same level of satisfaction.
2. Indifference curve is convex to the origin:
The indifference curve is convex to the origin. This implies that the slope of indifference curve, i.e. marginal rate of substitution (MRS) decreases as we move along the curve from left downward to the right. The indifference curve is convex to the origin because of diminishing marginal rate of substitution. Marginal rate of substitution is the rate at which one commodity is substituted for another so that total satisfaction remains same.
3. Indifference curves do not intersect with each other:
Indifference curves do not intersect to each other. If they did, the point of their intersection would imply two different levels of satisfaction, which is impossible. In other words, if indifference curves intersect with each other, it violates the assumptions of indifference curve.
4. Higher indifference curve represents higher level of satisfaction:
An indifference curve, which is at the higher level, represents higher level of satisfaction than the lower one. In other words, the further away from the origin indifference curve lies, the higher the level of satisfaction it represents. It is because higher level indifference curve contains larger quantity of at least one or both commodities.
5. Indifference curve never touches either or both axes:
Indifference curvesdo not touch either or both axes.
6. Indifference curves need not to be parallel to each other:
Indifference curves need not to be parallel to each other.
Exceptions of Indifference Curve
If marginal rate of substitution is increasing, then the indifference curve will be concave to the origin.
If goods are perfect substitutes, the indifference curve will be straight line.
If goods are perfect complementary, the indifference curve will be right angled
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