Tuesday, September 3, 2019

what is indifference curve

INDIFFERENCE CURVE:
                                  A POPULAR ALTERNATIVE TO THE MARGINAL UTILITY ANALYSIS OF DEMAND IS THE INDIFFERENCE CURVE ANALYSIS . THIS IS BASED ON CONSUMER PREFERENCES AND BELIEVES THAT WE  CANNOT QUANTITATIVELY MEASURE HUMAN SATISFACTION IN MONETARY TERMS . THIS APPROACH ASSIGNS AN ORDER TO CONSUMER PREFERENCES RATHER THAN MEASURES THEM IN TERMS OF MONEY .
  

WHAT IT ACTUALLY MEANS:
                                    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 .

Image result for indifference curve
Image result for indifference curve
Image result for indifference curve

PROPERTIES OF AN INDIFFERENCE CURVE OR IC

 . AN  IC SLOPES DOWNWARDS TO THE RIGHT
                                                                         THIS SLOPES SIGNIFIES THAT WHEN THE QUANTITY OF ONE COMMODITY IN COMBINATION IS INCREASED ,THE AMOUNT OF THE OTHER COMMODITY REDUCES .

.  AN IC IS ALWAYS CONVEX TO THE ORIGIN
                                                                      THIS IS THE DIMINISHING MARGINAL  RATE OF SUBSTITUTION .THE RATE GIVES CONVEX SHAPE TO THE INDIFFERENCE  CURVE ,HOWEVER THERE ARE TWO EXTREME SCENARIOS:


1   TWO COMMODITIES ARE PERFECT SUBSTITUTES FOR EACH OTHER .IF IN CASE THE INDIFFERENCE CURVE IS STRAIGHT  LINE,WHERE MRS IS CONSTANT.

2  TWO GOODS ARE PERFECT COMPLEMENTARY GOODS .


                               

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