In this case, ΔY 2 is greater than ΔY 1, ΔY 3 is greater than ΔY 2, and so on. The concept of the indifference map can be further understood through a figure given below: The space between axis X and Y is called as the Indifference Plane or Commodity Space. A physical property is a characteristic of a pure substance that can be observed withous changing it into another substance. The better sets for points X, Y and Z, respectively are convex but none is strictly convex. It can be assumed that as more and more of units of apple are substituted for orange, the consumer will be willing to give up fewer and fewer units of orange for additional units of apple. Point A lies on both I 1, and I 2. Now, can you tell which of these indifference curves give higher satisfaction? Thus the indifference curve I 4 indicates a higher level of satisfaction than I 3 which, in turn, is indicative of a higher level of satisfaction than I 2 and so on.
The assumption that is needed to ensure the existence of a utility function is that the preference relation be continuous. If an indifference curve touches horizontal axis or vertical axis, it implies that the customer prefers only one commodity because when it touches axes, one of the commodities becomes zero quantity. With convex indifference curves, the average bundle lies on a higher indifference curve compared to the points on the curve. A lower income shifts the budget line inward without changing its slope. This is why we get an indifference region rather than an indifference curve. The interest on a judgment lien in Massachusetts is 12%. In the figure 7, the indifference curve is concave to the origin.
In any sale of real estate it is the responsibility of the buyer to have a professional title examination performed to disclose any outstanding liens. Larger combinations of the two commodities provide greater satisfaction than the smaller combinations of the same commodities. Thus, indifference curves cannot be concave to the origin. Suppose two indifferent curves cut each other at point K as shown in Figure 3. At point B, the consumer gets more of x than at point A and at point C, the consumer gets still more of x while the quantity of y remains constant. It means that the consumer to be indifferent to all the combinations on an indifference curve must leave less units of good Y in order to have more of good X. In general, movements from left to the right in the commodity space or on the indifference map correspond to increases in utility.
This part of the diagram is a conventional demand curve diagram. However, every higher or lower level of satisfaction can be shown on different indifference curves. From the figure, it is clear that when he slides down from A to E, he gives up less and less of commodity Y for each additional unit of X. Thus, indifference curves cannot intersect each other. An indifference curve represents all the combinations, which provide same level of satisfaction.
It is a locus of points sharing alternative combinations of apple and orange which give the same satisfaction to the consumer. As stated above, when two goods are perfect substitutes of each other, the indifference curve is a straight line on which marginal rate of substitution remains constant. As indifference curve theory is based on the concept of diminishing marginal rate of substitution, an indifference curve is convex to the origin. It follows that an increasing quantity of X will be required to compensate for the loss of Y. Later economists adopted the principles of indifference curves in the study of. An isoquant is a contour line drawn through the set of pointswhereby the same quantity of output is produced while changing twoor more inputs.
The bottom part of the Fig. The indifference curve I 1 is the locus of the points L, M, N, P, Q, and R, showing the combinations of the two goods X and Y between which the consumer is indifferent. Most economic textbooks build upon indifference curves to introduce the optimal choice of goods for any consumer, based on that consumer's income. This means that successive equal reductions in the amount of x 2 are compensated by successive equal increases in the amount of x 1. An indifference curve is purely a subjective phenomenon and it has nothing to do with the external economic forces. Another point which is worth mentioning in this regard is that indifference curves cannot even meet or touch each other or be tangent to each other at a point.
Indifference curves are convex to the origin The very important feature of the indifference curves is that they are convex to the origin and they cannot be concave to the origin. In the following schedule Table 12. That is, they slope downward from left to right. The level of satisfaction of consumer for any given combination of two commodities is same for a consumer throughout the curve. Article shared by : We may now examine the implications of the axioms in the context of the properties of indifference curves. We can clearly see that the rate of decrease in consumption of coffee is not the same as rate of increase in consumption of cigarette. The axiom of non-satiation implies that in the area B including the boundaries, except for X itself must be preferred to X, and all points in the area W again including the boundaries except for X must be inferior to X.
A higher isoquant refers to a greater quantity of output and a lower one, to a smaller quantity of output. Further, intersection of two indifference curves also violates the assumption of positive marginal utilities of the two commodities. This rule follows from assumption 1. However, if we compare point B and point C, we can clearly see that point C offers more of good A and good B 90 and 140 as compared to point B 80 and 130. Strictly convex indifference curves produce well behaved preferences. It could have any of the shapes shown in Fig.