Concept ,Slope And Properties of indifference curve .

2. HISTORY
The concept of
indifference curve was
first developed by British
economist:-
Francis Ysidro Edgeworth
and was put into use by
Italian economist Vilfredo
Pareto during the early 20th
century.

3. Concept Of Indifference Curve
 This is based on consumer preference and believes
that we cannot quantitatively measure human
satisfaction in monetary terms. This approach assigns
an order to consumer preferences rather
than measure them in terms of money.
 An indifference curve 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. Hence the name indifference
curve.

4. EXAMPLE
 Peter has 1 unit of food and 12 units of
clothing. Now, we ask Peter how many units of
clothing is he willing to give up in exchange for
an additional unit of food so that his level of
satisfaction remains unchanged.
 Peter agrees to give up 6 units of clothing for an
additional unit of food. Hence, we have two
combinations of food and clothing giving equal
satisfaction to Peter as follows:
 1 unit of food and 12 units of clothing
 2 units of food and 6 units of clothing

5. By asking him similar questions, we get various
combinations as follows:
Any combination lying on this
curve gives the same level of
consumer satisfaction.
Combinatio
n
Food Clothing
A 1 12
B 2 6
C 3 4
D 4 3

6. Assumptions of
Indifference Curve
 Two Commodities
 Non Satiety
 Ordinal Utility
 Diminishing
Marginal Rate of
Substitution
 Rational
Consumer

7. SLOPE -Marginal Rate of
Substitution
 The slope of
the indifference curve is
called the marginal rate of
substitution
 In economics, the
marginal rate of
substitution (MRS) is the
amount of a good that a
consumer is willing to
consume in relation to
another good, as long as
the new good is equally
satisfying.

8. If we go back to Peter’s example above, we
have the following table:
Comb
inatio
n
Food
Clothi
ng
MRS
A 1 12 –
B 2 6 6
C 3 4 2
D 4 3 1
In this example, Peter
initially gives up 6 units
of clothing to get an
extra unit of food.
Hence, the MRS is 6.
Similarly, for subsequent
exchanges, the MRS is 2
and 1 respectively.
Therefore, MRS of X
for Y is the amount of Y
whose loss can be
compensated by a unit
gain of X, keeping the
satisfaction the same.

9.  Interestingly, as Peter
accumulates more units of
food, the MRS starts
falling – meaning he is
prepared to give up fewer
units of clothing for food.
There are two reasons for
this:
I. As Peter gets more units
of food, his intensity of
desire for additional units
of food decreases.
II. Most of the goods are
imperfect substitutes for
one another. If they could
substitute one another
perfectly, then MRS
would remain constant.
6
2
1

10. Properties Of Indifference Curve
1) An Indifference Curve slopes
downwards to the right
 When a consumer wants to
have more of a commodity,
he/she will have to give up some
of the other commodity, given
that the consumer remains on
the same level of utility at
constant income.
 As a result, the indifference
curve slopes downward form
left to right.

11. An indifference curve can neither be horizontal line nor an
upward sloping curve. This is very important.
 To prove this property, let us
take indifference curves
contrary to this assumption. In
Figure (A) В is preferable to
combination A which has a
smaller amount of the two
goods. Therefore, an
indifference curve cannot
slope upward from left to right.
It is not an iso-utility curve.
 Similarly, in Figure (B)
combination В is preferable to
combination A, for
combination В has more of X
and the same quantity of Y.So
an indifference curve cannot
be horizontal

12. 2). Indifference Curve is Convex to the Origin:
The slope of IC is negative.
It is convex to the origin.
 This is an important
property of indifference
curves. They are convex to
the origin (bowed inward).
This is equivalent to saying
that as the consumer
substitutes commodity X
for commodity Y, the
marginal rate of substitution
diminishes of X for Y along
an indifference curve.

13. To prove this, let us take a concave curve where the
marginal rate of substitution of X for Y increases
instead of diminishing, i.e., more of У is given up to
have additional units of X

14. 3).Indifference Curve Cannot Intersect Each Other:
Each indifference curve is a
representation of particular level
of satisfaction.
Fig shows two ICs intersecting
each other at point A. Since
points A and B lie on IC1, they
give the same satisfaction level to
an individual. Similarly, points A
and C give the same satisfaction
level, as they lie on IC2.
Therefore, we can imply that B
and C offer the same level of
satisfaction, which is logically
absurd. Hence, no two ICs can
touch or intersect each other.

15. 4) Higher Indifference Curve Represents Higher
Level Of Satisfaction
Higher the
indifference curves,
higher will be the
level of satisfaction.
This means any
combination of two
goods on the higher
curve give higher
level of satisfaction
to the consumer
then the lower one.

16. 5).An Indifference curve Does Not Touch The
Axis
This is not possible
because of our
assumption that a
consumer considers
different combinations of
two commodities and
wants both of them. If
the curve touches either
of the axes, then it
means that he is
satisfied with only one
commodity and does not
want the other, which is
contrary to our
assumption.