assumptions of Indifference Curve..
Answers
Answered by
5
Heya....
Assumptions of IC are....
* Money income of consumer remains constant..
* Consumer is rationale for maximum satisfaction...
* Monotonic Preferences are preferred for use...
* Consumer preferences are given widely....
* Consumer spends his income on two goods that are subsitute of each one...
Assumptions of IC are....
* Money income of consumer remains constant..
* Consumer is rationale for maximum satisfaction...
* Monotonic Preferences are preferred for use...
* Consumer preferences are given widely....
* Consumer spends his income on two goods that are subsitute of each one...
ryan567:
hi
hi
Answered by
7
1. Completeness:
By completeness we mean that if two bundles of goods are given to a customer, he will either be able to determine his preference for one bundle over the other or rank both equally. Naturally, this assumption eliminates the possibility of indecisiveness of consumers.
2. Transitivity:
It is assumed that consumers’ preferences are transitive which means that preferences over bundles are consistent. Out of three bundles A, B and C, if a consumer prefers bundle A to bundle B and bundle B to bundle C, then by transitivity we can claim that he prefers bundle A to bundle C.
Similarly, if a consumer feels equal preference for A arid B and for B and C, then following the assumption of transitivity, we can claim that the customer also feels equal preference for A and C.
3. Non-satiety:
The assumption of non-satiety implies that consumers never reach a point of saturation, ceteris paribus. In other words, non- satiety means, other things being equal, more quantity of goods is always preferred to less.
Suppose, initially a consumer was offered 100 square feet of shelter and 3 Kg of food per day. Now, if another bundle is offered to him, which comprises 100 square feet of shelter and 15 kg of food per day, he will prefer the new bundle, since it gives him 12 kg of extra food per day.
4. Diminishing Marginal Rate of Substitution (MRS):
The assumption of diminishing marginal rate of substitution implies that, the more of one good a consumer possesses, the more of that good he must demand to give up a unit of the other good, because increase in quantity of a good reduces its marginal utility.
MRS is measured by the ratio of extra amount of good (measured along the horizontal axis) that the consumer accepts to the amount of good (measured along the vertical axis) he forgoes and maintains the same satisfaction level.
hope it helps you. . . . . . follow me. . . . . . mark as a brainlist. . . .
By completeness we mean that if two bundles of goods are given to a customer, he will either be able to determine his preference for one bundle over the other or rank both equally. Naturally, this assumption eliminates the possibility of indecisiveness of consumers.
2. Transitivity:
It is assumed that consumers’ preferences are transitive which means that preferences over bundles are consistent. Out of three bundles A, B and C, if a consumer prefers bundle A to bundle B and bundle B to bundle C, then by transitivity we can claim that he prefers bundle A to bundle C.
Similarly, if a consumer feels equal preference for A arid B and for B and C, then following the assumption of transitivity, we can claim that the customer also feels equal preference for A and C.
3. Non-satiety:
The assumption of non-satiety implies that consumers never reach a point of saturation, ceteris paribus. In other words, non- satiety means, other things being equal, more quantity of goods is always preferred to less.
Suppose, initially a consumer was offered 100 square feet of shelter and 3 Kg of food per day. Now, if another bundle is offered to him, which comprises 100 square feet of shelter and 15 kg of food per day, he will prefer the new bundle, since it gives him 12 kg of extra food per day.
4. Diminishing Marginal Rate of Substitution (MRS):
The assumption of diminishing marginal rate of substitution implies that, the more of one good a consumer possesses, the more of that good he must demand to give up a unit of the other good, because increase in quantity of a good reduces its marginal utility.
MRS is measured by the ratio of extra amount of good (measured along the horizontal axis) that the consumer accepts to the amount of good (measured along the vertical axis) he forgoes and maintains the same satisfaction level.
hope it helps you. . . . . . follow me. . . . . . mark as a brainlist. . . .
Similar questions