Details related to Indifference curve, Indifference map, Budget line, Consumer Equilibrium

1. Consumer’s Equilibrium by Indifference Curve
Analysis
Prepared By:
Mohammed Jasir PV
Asst. Professor
MIIMS, Puthanangadi

2. Topics / Areas
• Indifference Curve
• Indifference MAP
• Budget Line
• Equilibrium

3. What is an Indifference Curve?
• 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.

4. Definition - Indifference Curve
• An indifference curve is a graph showing combination of two goods that give
the consumer equal satisfaction and utility. Each point on an indifference
curve indicates that a consumer is indifferent between the two and all points
give him the same utility.

5. Features / Properties (Characteristics) of Indifference Curves
• Negatively slop / Convex to the origin
• Higher Indifference curve has higher level of
satisfaction
• 2 IC never intersect
• IC never touch any axis
• IC need not be parallel
• MRS

6. Indifference Map
• An Indifference Map is a set of Indifference Curves. It depicts the complete
picture of a consumer’s preferences.
• The following diagram showing an indifference map consisting of
three curves

7. The Marginal Rate of Substitution
• The slope of the indifference curve is called the MRS which is the ratio of the
marginal utilities of the two commodities.
• The marginal rate of substitution (MRS) is the amount of a good that a
consumer is willing to give up for another good, as long as the new good is
equally satisfying.
• It's used in indifference theory to analyze consumer behavior.
• The marginal rate of substitution is calculated between two goods placed on
an indifference curve, displaying a frontier of equal utility for each
combination of "good A" and "good B."

8. The Budget (Price) Line
• A budget line is a locus of points showing alternative combinations of two
goods that can be purchased with a fixed amount of money income and fixed
prices of the two goods.
• If we know the budget (or the spending power) of the consumer and his
Indifference Map we can find out what quantity of each commodity he will
purchase.
• With the same information we can measure the effect of changes in the
prices of commodities and of changes in the income of the consumer.

9. Consumer Equilibrium
• Consumer Equilibrium is reached at the
point of tangency between the budget line
and the highest-attainable indifference
curve.
• This combination maximizes total
satisfaction with a given limited budget

10. Thank You