indifference curve

1. Indifference Curve Analysis
Scale of Preference:
Customer prefers different products and he may have a
different alternatives. All the list of alternatives (television,
camera, micro woven, computer) are called scale of
preference. How a consumer makes his desire and build up
a scale of preference. It influence by the following:
i) Magic money: money spend by the people differently
ii) Taste of the people: taste differ from man to man
iii) Income: increasing income influence preference
iv) External factors: social, culture, values, legal
v) Internal factors: perception, emotion, feeling, attitude
vi) Life cycle: different stages have different demand
v) Marketing program: influence on preferences

2. Assumptions of Preference
i) Completeness: able to chose from two combination
ii) Non-satisfaction: consumer prefer more or less
iii) Consistency: when Q is better than R, he will prefer Q.
iv) Substitutability: substitute product exist in the market
v) Convexity: maintain the diminishing rate of utility
vi) Utility: it is ordinal utility based not cardinal
vii) Incomer: incomer of the customer is fixed
viii) Customers: are rational not emotional
Indifference Schedule and Curve: The theme of
indifference analysis can be illustrated by carve or schedule.
Indifference Map: a graph showing a family of indifference
curve of a consumer. When a figure shows more than one
IC it is called indifference map; ICiii > ICii > IC.

3. Indifference Curves
Indifference Curves: represents satisfaction of a
consumer from two commodities. For all possible points on
an indifference curve, that the total satisfaction remains the
same (Iso-utility curve).
Combinations Apples Mangoes
• 01 15 01
• 02 11 02
• 03 08 03
• 04 06 04
• 05 05 05
i) Total satisfaction is the same in all these combinations.
ii) This is indifference schedule
iii) Transfer this schedule into diagram and thus get an
indifference curve (IC) in the following figure.

4. 15
1
YA
11
2
8
3 4
6
5
5
IC
0
XM
a
b
c
d e
ICii
Y
0 X
IC Curve Indifference Map
ICi
IC

5. Properties of Indifference Curve
1) Indifference curves slope downward to the right:
horizontal, vertical and upward indifference curves do not
maintain the rules of indifference curves.
2) Indifference curves are convex to the origin: for the
effect of marginal rate of substitution of the two products.
3) Indifference curves can not intersect each other: if
it is intersecting then it will not IC because ICii will be
grater than ICi.
4) Higher IC represents a higher level of satisfaction:
and lower IC represents a lower level of satisfaction.
5) Indifference curves have no zero point: because each
point indicates the combination of two products.

6. Properties
1
Horizontal
a b c
A
O M
7
A
O M
IC
6
5
4
3
2
1
1 2 3
IC
Vertical
IC
3
2
1
1 2 3 4 5 6 7
Upward
IC
3
2
1
1 2 3
a
b
c

7. Properties
4
2
a
b
c
d
3
A
M
a b c
ICiii
ICiiICi
ICiii
ICiiICi
5
A
M
A
M
M
A
a
b
O
O O
O

8. Sugar Production
O
Negative IC or Exceptional IC: when IC curve upward to
the left. If you want to increase sugar production then air
pollution will be increased.
Air Pollution
IC
3
2
2 3
1
1
a
b
c

9. Consumer’s Equilibrium
Consumer’s equilibrium: when consumer gets the
maximum satisfaction with his limited budget.
Assumptions: i) consider indifference map ii) monetary
income is limited iii) price of the product is same
iv) taste is unchanged v) customer act normally.
Budget line: a set of combination of two commodities that
can be purchased within fixed budget and price.
Income effect: when the income of the customer increase
he can buy more and when decrease he can buy less.
Price effect: change in the price of one of the goods he
can buy more or less, when his income and the price of
other goods remain the same.
Substitute effect: change in the quantity of a good
purchased which is due only to the change in relative
price, money income remaining constant.

10. Budget Line
Y
C
XO
N
M B
10
4
3 5
O
Y
A
N P
M B
X
ICI
IC2
IC3
Consumer’s Equilibrium
Excide budget line
Dissatisfaction