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Indifference Curve

Defination:
A Curve Which Shows All Possible Combination Of Two Commodities
(X,Y) That Will Give Same Level Of Satisfaction to the Consumer is Called
Indifference Curve (IC).

Assumptions:
There Are Many Assumptions of IC but Here We Will Discuss Few
Of Them:

(1) Consumer is Rational:


A Consumer acts rationally so as to maximize his
Satisfaction. The word Rational contains two aspects which are very important
or basics of Economics. Which are given below?
(a) The Economist should have complete command over market Knowledge.
(b) He should want to maximize his satisfaction.

(2)Commodities Taken:
In IC there is always combination of two commodities (X
Y) one commodity is not taken. Always taken at least two commodities.

(3)Diminishing MRSYX :
Always in IC Diminishing Marginal Rate Of
Substitution is Applicable. MRSYX Never be constant and Increases. But it is
always Diminishing .

(4)Ordinal Approach:
Different level of satisfaction can be indicated with
ordinal approach.

(5)Total Utility (Tu):


Total Utility depends upon the quantities of
commodities of choices. Total utility can be calculated as under:
Tu = u1+u2+u3+..+un

Schedule:
Combination
A

X goods
1

Y goods
13

MRS YX
---

Satisfaction
Same

B
C
D
E

2
3
4
5

9
6
4
3

1:4
1:3
1:2
1:1

Same
Same
Same
Same

Explanation:
According to above table when consumer has 1 unit of
X commodity and 13 units of Y commodity, he is willing to forgo 4 units of Y
commodity to get 1 unit of x commodity. Whereas new combination give us
same level of satisfaction. In the last combination, he is willing to forgo 1 unit of
y commodity to get 1 unit of x commodity.

Conclusion:
From above table we conclude that MRSYX goes on
Diminishing. So, the Consumer feels Indifferent about A to E combination
because the total satisfaction is the same in these combinations.

Graph:

Horizontal Axis : >


Vertical Axis :>

X commodity
Y commodity

IC

Indifference Curve

Explanation:
Consumer purchases 1unit of X and 13 units of Y to get maximum
satisfaction. By the intersection of first combination of Xand Y commodities.
We get point A In order to get more one unit of X the consumer has to forgo 4
units of Y then we get point B. Similarly we get points CDE by joining these
points (ABCDE) we get a curve which is called Indifference curve. (IC)

MRSYX:
(Marginal rate of substitution)
MRSYX shows the following features:
1. It shows rate of exchange between two commodities.
2. Marginal rate of substitution (MRSYX) is the slope of IC.
Proper Definition:
3. How much units of Y commodity a consumer has to forgo in order to get
one additional unit of X commodity.

Formula:
Its formula is given below:

MRSYX =
Characteristics :(1) IC is convex to the origin:

Reason:
IC is always convex to the origin because MRSyx decreasing.

(2) IC is not concave to the origin:

Reason:
IC is not concave to the origin because MRSyx increases which is
wrong statement.
(3) IC is not straight line
(4) IC never not intersect each other
(5) IC does not touch Horizontal Axis
(6) IC does not touch Vertical Axis
(7) IC is not parallel to Horizontal Axis
(8) IC is not parallel to Vertical Axis
(9) Higher IC shows higher level of satisfaction
(10) Lower IC show lower level of satisfaction
(11) IC is Negative Sloped