Question

What is indifference curve? What are its properties?

Answer 1

Explanation:

There are four important properties of indifference curves that describe most of them:

(1) Indifference curves are downward sloping,

(2) higher indifference curves are preferred to lower ones

, (3) indifference curves cannot intersect, and

(4) indifference curves are convex (i.e. bowed inward). Microeconomics 3 comments

Answer 2

Answer:

It is a curve that represents all the combinations of goods that give the same satisfaction to the consumer. Since all the combinations give the same amount of satisfaction, the consumer prefers them equally. Hence the name Indifference Curve.

Here are the properties of an indifference curve:

:1.An IC slopes downwards to the right

This slope signifies that when the quantity of one commodity in combination is increased, the amount of the other commodity reduces. This is essential for the level of satisfaction to remain the same on an indifference curve.

2.An IC is always convex to the Origin:

We can understand that as if someone substitutes clothing for food, he is willing to part with less and less of clothing. This is the diminishing marginal rate of substitution. The rate gives a convex shape to the indifference curve. However, there are two extreme scenarios:

2(a).Two commodities are perfect substitutes for each other – In this case, the indifference curve is a straight line, where MRS is constant.

2(b).Two goods are perfect complementary goods – An example of such goods would be gasoline and water in a car. In such cases, the IC will be L-shaped and convex to the origin.

.3. Indifference curves never intersect each other

Two ICs will never intersect each other. Also, they need not be parallel to each other either.

4.A higher IC indicates a higher level of satisfaction as compared to a lower IC

4.A higher IC indicates a higher level of satisfaction as compared to a lower ICA higher IC means that a consumer prefers more goods than not.

5. An IC does not touch the axis

This is not possible because of our assumption that a consumer considers different combinations of two commodities and wants both of them. If the curve touches either of the axes, then it means that he is satisfied with only one commodity and does not want the other, which is contrary to our assumption.