Because it is based on the ordinal measurementie;ranking of utility ..
Each point of the curve represent each combination of two goods. All these combination yields the same level of total satisfaction. The consumer is indifferent so as to the different combination on the same curve.
Indifference curve can be better understood with the help of an indifferent schedule. Indifferent schedule means its a table. The schedule shows that the consumer can select any combination. If we represent these schedule in a graph we can obtain indifference curve that is indifference curve is the graphical representation of indifference schedule. In the indifference curve consumer can substittute one commodity for another to maximize his satisfaction.
We cannot say how much utility the higher indifference curve represents , meaning Aggregate Utilities are rankable not measurable.
Ordinal utility Managerial Economics
Indifference curve analysis
0 Developed - Edge worth
0 It was later preferred by J.R Hicks & R.J.D. Allen
0 indifference curve approach is also known as ordinal
0 consumer express their utility in terms of preference
not in term of quantity.
0 A consumer is assumed to buy any two goods in combinations.
0 A consumer can rank the alternative combinations and compare
their level of satisfaction, and he prefers a combination providing
a higher level of satisfaction.
0 Consumer is rational and his choices are transitive.
0 The consumer behavior is assumed to be constant, throughout
An indifference curve may be defined as the
locus of various combination of two goods which
yield the same total satisfaction to the consumer
0 The following table shows the indifference schedule of
combination of biscuits and cups of tea for a
Cups of Tea
Graphical representation of indifference schedule…
CUPS OF TEA
A collection of indifference
curve is known as indifference map.
0 A higher indifference curve indicates a
higher level of satisfaction and vise
MARGINAL RATE OF
The MRS is the rate at which one commodity can be
substituted for another, the level of satisfaction
remaining the same.
The marginal rate of substitution between two
commodities X and Y , may be defined as the quantity
of X which is required to replace one unit of Y , in the
combination of the two goods so that the total utility
remains the same.
The MRS is depends upon the prices of the commodity.
For ex; Two commodities like X and Y Prices of X is
assumed as RS.10 price of Y is RS.5 .If a consumer
have RS.200 as income he can purchase either 10
units of X and 20 units of Y .If the price of X increases
consumer substitute more Y by reducing the
consumption of X. The aim of consumer is maximum
satisfaction with his limited income.
1.INDIFFERENCE CURVE SLOPES
DOWNWORD FROM LEFT TO RIGHT;
Indifference curve have a negative slope. It indicate
the marginal rate of substitution of the consumer.
Any point on indifference curve provide equal
2.CONVEXITY TO THE ORIGIN
0 The convexity of the indifference curves implies two properties
1. The two commodities are imperfect substitutes for one another.
2. The marginal rate of substitution (MRS) between two goods
decreases as a consumer moves along an indifference curve.
This characteristics of indifference curve is based on the
postulate of diminishing marginal rate of substitution.
3.INDIFFERENCE CURVE CANNOT
INTERSECT EACH OTHER
4. HIGHER INDIFFERENCE CURVE
SHOWS HIGHER LEVEL OF
An indifference curve placed above and to the right
of another represents a higher level of
satisfaction than the lower one.
10 20 30 P