In other words, MRS diminishes along the same indifference curve. Free Online MCQ Questions of CBSE Class 11 Microeconomics Chapter 4 - Consumer's Equilibrium (Indifference Curve Analysis) with Answers. 3. Found inside – Page 19Using the theoretical framework and Figure 1, a set of five testable ... (1981), among others, AR1 > Act if the typical properties of indifference curves ... (10 Marks) Consider the demand for a good. The magnitude |∆x2/∆x1|, called MRS, becomes smaller. 5.3 Diminishing Marginal Rate of Substitution. We can prove this property of indifference curves through contradication. In order to ensure that we have indifference curves like those in Fig. If she has more of good A, the MRS is 0.5 units of good B per unit of good A. World’s Largest Collection of Essays! Slopes downward from left to right : To consume more of one good the consumer must give up some quantity of the other good so that total utility remains the same. In fact, any point in the shaded area with Y as origin dominates Y. Firstly, in the indifference curve technique, utility cannot be measured. Content Guidelines 2. They are Convex to the Origin of Axes 3. It would mean that indifference curves representing different levels of satisfaction are showing the same level of satisfaction at the point of intersection or contact (Fig. Fig. Now point Y is not indifferent to X but is inferior to X because it lies to the left of X. To restrict ourselves to a curve like IC1 we have to draw a distinction between ‘general’ convexity and ‘strict’ convexity. Found inside – Page 130For a five-asset portfolio, these are illustrated in Figure 7.1 which shows ... Selecting the investor's optimum portfolio using indifference curves Having ... Found inside – Page 450( ii ) Draw a demand curve showing elasticity equal to one . ( iii ) What is Law of Supply ? ... ( a ) What are the main properties of indifference curves ? point A) is on both curves. Indifference Curve This curve shows different combinations of two goods, each combination offering the same level of satisfaction to the consumer. This means that any indifference curve has no gaps or breaks at any point. Get Your Custom Essay on Properties of indifference curves Just from $9/Page Order Essay Due date: April 11, 2018 at 11:55 pm EC Instructions: Answer ALL Questions. Suppose price of the good increases to Rs 5, and as a result, the demand for the good falls to 20 units. As we already learned above, consumers always prefer larger quantities. You can spend your money on potatoes at Rs. Found inside – Page 72Continuity relies on the convexity of indifference curves which implies that ... The above five properties are not the only restrictions that are placed on ... To obtain 1 more unit of ‘X’, he is willing to give up Y, Y2 units of ‘Y’ to acquire further additional units of ‘X’; he is ready to part with Y2 Y3, Y3 Y4 units of ‘Y’ and so on. Description. Points ‘B’, ‘C’ or any point between them on indifference curve IC2 have more of at least one good without having less of the other compared to point ‘A’ on indifference curve IC1. The indifference curve is downward sloping. Indifference Curve: An indifference curve shows a combination of two goods that give a consumer equal satisfaction and utility thereby making the consumer indifferent. Microeconomics, Preference Theory, Indifference Curve, Properties of Indifference Curves. 5. Even if X has more of one commodity and the same amount of the other, X will dominate Y (weak dominance) as Fig. Downward sloping: It always slopes adversely due to the effect of substitution between two goods. IC need not be parallel to each other: 2 per Kg or tomatoes at Rs. This means that an indifference set may be a single point, an unconnected set of points or a curve. 5.7(b), 5.7(c), since he starts consuming more of at least one commodity with such movement, Therefore, indifference curve cannot be horizontal or vertical. If, however, while constructing the segment XY we find that IV lies on the indifference curve, the curve is simply convex, not strictly so. a. This website includes study notes, research papers, essays, articles and other allied information submitted by visitors like YOU. 4.17). (All costs and prices are in Tk.) An indifference curve joins all points representing bundles which are considered indifferent by the consumer. Read More. Published by Experts. Plagiarism Prevention 5. Of these only curve IC] is meaningful because it is convex to the origin. This appendix presents an alternative approach to describing personal preferences, called indifference curves, which avoids any need for using numbers to measure utility. If not, state which of the general principles rules out the curves. In these three situations, the level of satisfaction of the consumer rises, as he moves from point ‘A’ to point ‘B’ rightwards (Fig. Intersection of two indifference curves representing different levels of satisfaction is a logical contradication. Image Guidelines 4. Simply, an indifference curve is a graphical representation of indifference schedule. Indifference curve definition. This curve is also known as Iso-utility curve. In fig, X-axis shows the quantity of rice and Y-axis shows the quantity of wheat. Draw a diagram to show the long run equilibrium condition of the perfectly. The list of properties of the indifference curves are as follows:-. Found inside – Page 311Five of these properties are of particular interest . 1 . Indifference curves have downward ( negative ) slopes . For example , the curve sketched in Exhibit 19 . 3 is not a possible shape if both X and Y are desirable goods . Indifference Curves are Downward Sloping. No utility function represents this preference ordering. If a consumer has a lot of good B, the MRS is 3 units of good B per unit of good A. Welcome to Shareyouressays.com! IC slopes downward: 2. In the same way, any point in the lower (south-west) quadrant such as K is inferior to Y since Y dominates all points in it. Indifference curves are graphs that represent various combinations of two commodities which an individual considers equally valuable. For bundles with a given amount of x1 — that is, bundles lying on the vertical line through X — those to the north are preferred to those to the south. Share Your Essays.com is the home of thousands of essays published by experts like you! In other words, an indifference curve is the locus of points showing the alternative combinations of two goods among which a consumer is indifferent. The indifference curve is a boundary line: to the right of the line we have a set of points which are preferred to the set up points to the left of the line. Properties or Characteristics of Indifference Curve The properties or characteristics of the indifference curve are as follows: 1. Question: Illustrate, on a fully labelled diagram, the hypothetical indifference curve map of a student who derives utility from either higher grades or free time. As seen in Table, when th e . On the line itself, all points are indifferent to one another. The following points highlight the top six properties of indifference curve. 1.3 Properties of Indifference Curves. In microeconomic theory, an indifference curve is a graph showing different bundles of goods between which a consumer is indifferent. 4.28 shows. 2.5, IC 1 represents the lowest satisfaction, IC 2 shows satisfaction more . If the various combinations are plotted on a diagram and are joined by a line this becomes an indifference curve, as I 1 О in the Figure 12.1. Further, intersection of two indifference curves also violates the assumption of positive marginal utilities of the two commodities. Found inside – Page 112(60 Marks) Answer any five questions. Question 2 (a) Explain how the ... (b) Discuss any two properties of indifference curve. [3] General Instructions: (i) ... With reference to your diagram, explain five properties of indifference curves. Learning Objective 1.3: Relate the properties of indifference curves to assumptions about preference. Reference: Microeconomics written by: D.N Dwivedi Publisher: Pearson 6. 5.11, the consumer would prefer to lie on indifference curve IC2 rather than indifference curves IC1 though he is indifferent between all points on IC1 or IC2. b. 5 Assumptions of Indifference Curve. is indifferent about any combination of goods on the curve. IC is convex to the origin: 3. The very important feature of the indifference curves is that they are convex to the origin and they cannot be concave to the origin. Draw Sabine's budget line for Coke and Pepsi on the same diagram. If they did, the axes would become extensions of the indifference curves. Found inside – Page 803Sylvia is a slow worker who produces only five chairs per day, ... Use the four properties of indifference curves for ordinary goods illustrated in Figure ... The following table shows a firm's input, output and costs in the short run. 2. An indifference curve represents various combinations of two commodities. In this diagram the two indifference curves intersect each other. Indifference curves are widely used in microeconomics to analyze consumer preferences, the effects of subsidies and taxes, and a few other concepts. Higher indifference curve represents more satisfaction: 5. Before uploading and sharing your knowledge on this site, please read the following pages: 1. INDIFFERENCE CURVE An Indifference curve is a curve which represents all those combinations of goods which gives same level of satisfaction to the consumers. This preference for mixtures is a commonly observed aspect of consumer behaviour. 5.10 (a)), intersect (Fig. Calculate the price elasticity? In order to ensure this shape of an indifference curve we have to make a further axiom. Outline the four properties that apply to all indifference curves. And thus, the more preferable the indifference curve becomes. Indifference curves are widely used in microeconomics to analyze consumer preferences, the effects of subsidies and taxes, and a few other concepts. have been used. But, since the axes are linear, this is inconsistent with strict convexity, although it is consistent with (weak) convexity. The graph of an indifference map is a continuous surface. Just think about it, if someone were to ask you if you wanted a free slice of pizza or an entire pizza for free, what would you say? Terms of Service 7. TOS4. As a result, the consumer would be willing to sacrifice larger and larger units of ‘Y’ to obtain each additional unit of ‘X’. Indifference Curves are convex (i.e. In Fig. Linearity in the indifference curve over some range implies that within this range, MRS remains constant. 4.3 Indifference Curves are convex to the origin. 4.20, compared to Y each zone of ignorance contains less of one commodity and more of the other. This book explains basic physiologic and pathophysiologic mechanisms of cardiovascular disease in a straightforward manner, gives guidelines as to when referral is appropriate, and, uniquely, explains what the specialist is likely to do. In short, the consumer always prefers more of both commodities to less. 4.2 Higher IC represents a higher satisfaction level. Bundle / Books / Movies. Clearly Y1 Y2 < Y2 Y3 < Y3 Y4, so a situation of increasing marginal rate of substitution has arisen. APA format is recommended. Three properties of indifference curves are as follow. Draw a diagram to show the long run equilibrium condition of the perfectly competitive firm [5 marks] b.… Continue reading Properties of indifference . The slope of an indifference curve shows the rate of substitution between two goods, i.e. ECON1001: Introduction to Microeconomics Graded Worksheet 2 (15%) Don't use plagiarized sources. Who says no to free pizza, right? Thus, averages are preferred to extremes. Thus, indifference curves cannot be concave to the origin. What is Indifference Curve, explain with the help of diagram and also explain its properties Welcome to Case Study Help We at Case Study offer all types of online academic assistance, be it homework help, coursework help, case study help, Assignment help, Project Reports, Thesis, Research paper writing help. Copyright 10. Thus, an indifference curve is also known as 'equal satisfaction curve' or 'iso-utility curve'. In this diagram (3.5) there are three indifference curves, IC 1 , IC 2 and IC 3 which represents different levels of satisfaction. But a point like Y will surely be preferred to W, since Flies north-west of W: it contains more of both x1 and x2. 5.10). Since an indifference curve represents those combinations of two commodities which give equal satisfaction to the consumer the combinations represented by points A and C will give equal satisfaction to the consumer . 1. 4.26. Indifference Curve Meaning, Nature, Assumptions, Properties and Limitations Meaning and Nature of Indifference Curve The realms of consumer behavior were expanded to new horizons with the introduction of indifference curve analysis by J.R. Hicks and R.G.D. An indifference set can never be wider than a single point. Assume that a consumer's indifference curve is bowed outward but satisfies the other three properties of indifference curves. 4.4 Indifference Curves do not intersect. This is supposed to be a common feature of consumer preferences. Appendix B: Indifference Curves Economists use a vocabulary of maximizing utility to describe people's preferences. Uses of Indifference Curve. 5.2 Ordinal Utility. Each point on an indifference curve indicates that a consumer is indifferent between the two and all points give him the same utility. Yet no utility function exists that represents this preference ordering. Labor Quantity of Variable Total input Output cost cost 0 0 0 500 1 4 20 2 8 540 3 13 60 560 4 19 80 580 5 26 100 . Hence, indifference curves are convex to the origin. Indifference curve A from Figure 7.10 "An Indifference Curve" is inferior to indifference curve B. Ms. Bain prefers all the combinations on indifference curve B to those on curve A, and she regards each of the combinations In other words, we can say that the combination of goods which lies on a higher indifference curve will be preferred by a consumer to the combination which lies on a lower indifference curve. Higher indifference curve represents higher utility. Other possibilities for the shape of an indifference curve (horizontal, vertical, upward sloping, etc.) Account Disable 12. Now, of course it’s not always that simple, but in basic economic theory we can assume that consumers have a preference for larger quantities. Disclaimer Copyright. This is 4 Course in Economics course series and is designed in English. In Fig. For additional one unit X2X3 of ‘X’, he is ready to sacrifice Y2 Y3 units of ‘Y’. In order to maximize his level of satisfaction, the consumer will try to reach . Indifference Curve Analysis - In this lesson, we will discuss Introduction to Indifference Curve Analysis and its Assumptions. The axiom of strict convexity suggest that, given any consumption bundle Y, its better set a strictly convex. There are four important properties of indifference curves that describe most of them: 1. Therefore, these points on indifference curve IC2 represent higher satisfaction levels. What is Indifference Curve, explain with the help of diagram and also explain its properties. Like wise IC 3 lies above IC 2.. 2. So that the consumer is indifferent among the various combinations offered to him. " This landmark work by Nobel Prize winner J.R. Hicks is now available again. But, point ‘C’ lies on a higher indifference curve having more amount of commodity ‘Y\ It must be preferred to point ‘B’ by the assumption of non-satiety. In Fig. An indifference curve (IC) is the locus of all those combinations of any two goods that yields the same level of satisfaction to the consumer. 3. Examine and show with a graph how a consumer attains equilibrium under the Indifference curve analysis. • Two Indifference Curves never Intersect or become Tangent to Each other. (b) Slope of indifference curves represents marginal rate of substitution: Determine whether those general properties allow each of the following indifference curves. (1) Indifference Curves Slope Downward from Left to Right: Indifference curves have a negative slope. Since W is a weighted average of X and Y, the convexity assumption is stated in terms of ‘preferences for averages (means) over extremes.’ If W lies to the right of indifference curve, the curve is strictly convex. APA format is recommended Question 1 a. In economics, an indifference curve connects points on a graph representing different quantities of two goods, points between which a consumer is indifferent.That is, any combinations of two products indicated by the curve will provide the consumer with equal levels of utility, and the consumer has no preference for one combination or bundle of goods over a different combination on the same curve. As we know, all combinations of good A and good B that lie on the same indifference curve make the consumer equally happy. d. We'll cover the indifference curve definition and the properties of indifference curves. An isoquant is 'analogous' to an indifference curve in more than one way. 5.7(a)), both of which contain the same amount of ‘Y’ but combination ‘B’ has a greater amount of ‘X’ than combination ‘A’. 2. 4.21 we have to set another axiom. The price of each unit of output is Tk.200. This means that we allow the possibility of line segments in the indifference curves as Fig. Suppose you have a budget of Rs. In Fig. Thus to be able to derive an indifference curve we have to rule out the possibility of lexicographic orderings (which virtually amounts to ignoring addicts, whether it is cigarette, alcohol or chewing gum). good A and good B). From the above discussion on ordinal […] Higher indifference curve represents higher utility. Found inside – Page 23Explain any five properties of indifference curves. [MQP III, V-2016] Ans. Five properties of indifference curves are : (i) Indifference curve slopes ... Point W, for example, has more of x2 and less of x1. The properties of indifference curve follow from its definition and the assumptions upon which indifference curve approach is based. All the above axioms are related to a commodity space and to a consumer’s preferences. Similarly, if an indifference curve were vertical, this would mean that the two combinations ‘A’ and ‘B’ with equivalent satisfaction level have the same amount of ‘X’, but ‘B’ contains more ‘Y’ than ‘A’. We may now examine the implications of the axioms in the context of the properties of indifference curves. The four properties of indifference curves for ordinary goods illustrated in Figure 10-4 rule out certain indifference curves. The indifference curve Um has four points labeled on it: A, B, C, and D (see Figure 1). Suppose, ‘A’,’B’,’C’, and ‘D’ are four points on indifference curve IC in Fig. COMBINATION NUMBER OF APPLES NUMBER OF ORANGES A 1 10 B 2 7 C 3 5 D 4 4 TABLE 1 7. However, since we use indifference curves to show a consumer’s choice problem, from the point of view of solving optimisation problems continuity is a very important property. 4.23. 4.18 since bundle X has more of both commodities, X dominates Y. 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Of positive marginal utilities of the indifference curves are: 1 each combination offering same. Consumer always prefers more of this good in order to maximize his level of satisfaction can drawn. A logical contradication not a possible shape if both X and Y are desirable goods and shape experts you! Of properties of indifference curves slope downward from left to the consumer ’ preferences. • indifference curves also violates the basic economic assumption that is needed to ensure smooth convexity of curve. And tends to become L-shaped ( see also diminishing marginal rate of.... Person receives is described in numerical terms assumption that both the commodities have positive marginal utilities a possible if!, its better set is convex to the right, intersection of two commodities provide greater satisfaction the! Input, output and costs in the short run showing elasticity equal to one another to ensure smooth convexity indifference. Everywhere continuous they did, the demand curve of a consumer ’ s possession of x2 in commodity... Towards the origin and IC2 meet ( Fig Pepsi on the curve a! See also diminishing marginal rate of substitution ( MRS ) – Page 23Explain any five.... Model shows three what are the five properties of indifference curve shapes for an indifference curve as rendering the same curve... Which is consistent with ( weak ) convexity, ie, it has the following table shows firm... Resulting in the context of the two goods, each combination offering the same on an map.
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