2. DEFINITION: IC
An Indifference curve (IC) is the
locus of all those combination of
two goods which give the same
level of satisfaction to the
consumer.
Thus consumer is indifferent towards all the combinations
lying on the same indifference curve. In other words,
consumer gives equal preference to all such
combinations.
3. INDIFFERENCE CURVES
24
22 A(1, 22)
20
INDIFFERENCE SCHEDULE 18 )
(Table Showing Different 14
Combinations giving Equal
16
B(2,
Satisfaction) 14 1 0)
,
Combinatio Apples Oranges 12 C(3
8)
n 10
4,
7)
D(
5,
A 1 22 8
Oranges
E(
B 2 14 6
4
C 3 10
2 Apples
D 4 8 0
E 5 7 1 2 3 4 5 6
4. INDIFFERENCE CURVES
24
22 A(1, 22)
20
INDIFFERENCE SCHEDULE 18
)
16 ,14
Combination Apples Oranges B(2
14 0)
A 1 22 ,1
12
C(3
8)
B 2 14 10
4,
7)
D(
8
5,
C 3 10
E(
Oranges
D 4 8 6
4 IC1
E 5 7
2
Apples
0
1 2 3 4 5
5. MARGINAL RATE OF
SUBSTITUTION (MRS)
The marginal rate of substitution of X
for Y (MRSxy) is defined as the
amount of Y, the consumer is just
willing to give up to get one more
unit of X and maintain the same
level of satisfaction.
Decrease in the Consumption of Y = (-) ∆ Y
M xy
RS =
Increase in the Consumption of X ∆X
6. DIMINISHING MARGINAL
RATE OF SUBSTITUTION
Combination Apples Oranges MRS
A 1 22 ---
B 2 14 8:1
C 3 10 4:1
D 4 8 2:1
E 5 7 1:1
As the consumer increases the consumption of
apples, then for getting every additional unit of
apples, he will give up less and less of oranges, that
is, 8:1, 4:1, 2:1, 1:1 respectively This is the Law of
Diminishing MRS.
7. LAW OF DIMINISHING MRS
24 A
22
20
18
MRS = -∆O/∆A = 8:1
16
14 MRS = 4:1
MRS is measured 12 B
by the slope of 10
MRS = 2:1
C
the indifference 8
Oranges
curve 6
D
IC1
E
4
2
0 Apples
1 2 3 4 5
8. PROPERTIES OF IC
1. An Indifference curve has
negative slope i.e. it slope
downwards from left to right.
2. Indifference curve is always convex to the
origin.
