Indifference curve theory assumes that consumers will seek to maximize satisfaction when purchasing two goods given a fixed budget. An indifference curve represents all combinations of two goods that provide equal satisfaction. Properties of indifference curves include sloping downward to the right, being convex to the origin, and not intersecting, with higher curves representing greater satisfaction. The theory aims to explain consumer equilibrium when choosing between multiple options under scarcity.

1. INDIFFERENCE CURVE THEORY
Dept & Sem: B.Tech CSE IV Sem
Central University of Haryana

2. Indifference Curve
Indifference Curve is a locus of all such points which shows
different combination of two commodities which yield equal
satisfaction to the consumer, so that he is indifferent to the
particular combination he consumes.

3. Assumption of Indifference Curve
The indifference curve theory is based on some assumptions.
Two Commodities: It is assumed that the consumer has fixed amount of
money, all of which is to be spent only on two goods while prices of both
goods are constant.
Non Satiety: Satiety means full satisfaction. Indifference curve theory
assume that the consumer has hot yet reached the point of satiety. It
implies that the consumer still has the will to consume more of both the
goods.
Rational Consumer: A consumer always behaves in a rational manner, i.e. a
consumer always aims to maximize his total satisfaction.

4. Ordinal Utility Approach
Ordinal Utility Approach: The basic idea behind ordinal utility
approach is that a consumer keeps number of pairs of two
commodities in his mind which give him equal level of
satisfaction. This means that the utility can be ranked
qualitatively. The ordinal utility approach differs from the
cardinal utility approach (also called classical theory) in the
sense that the satisfaction derived from various commodities
cannot be measured objectively.

5. Ordinal theory is also known as neo-classical theory
of consumer equilibrium, Hicksian theory of
consumer behavior, indifference curve theory,
optimal choice theory. This approach also explains
the consumer's equilibrium who is confronted with
the multiple objectives and scarcity of money
income.
The important tools of ordinal utility are:
● The concept of indifference curves.
● The slope of I.C. i.e. marginal rate of substitution.
● The budget line.

6. Properties of Indifference Curve
1. Indifferent Curve Slope Downward to Right.
There are 4 basic properties of an indifference curve. These are -
An indifference curve can neither be
horizontal line nor an upward sloping curve.
This is very important.
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.

7. 2. Indifference Curve is Convex to the Origin:
They are convex to the origin. 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.
In this figure as the consumer moves from
A to B to C to D, the willingness to
substitute good X for good Y diminishes.
This means that as the amount of good X is
increased by equal amounts, that of good Y
diminishes by smaller amounts. The marginal
rate of substitution of X for Y is the
quantity of Y good that the consumer is
willing to give up to gain a marginal unit of
good X. The slope of IC is negative. It is
convex to the origin.
A
B
C
D
E

8. 3. Indifference Curve Cannot Intersect Each Other :
Each indifference curve is a
representation of particular level
of satisfaction. The level of
satisfaction of the consumer for
any given combination of two
goods is same throughout the
curve, that’s why indifference
curve cannot intersect each
other.

9. 4. Higher Indifference Curve Represents Higher level of
Satisfaction
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.

10. references:
1) https://en.wikipedia.org/wiki/Indifference_curve
2) https://www.google.com/search?q=indifference+curve+theory+graph&rlz=1C1
CHZO_enIN905IN905&sxsrf=ALeKk02S81QYiZbdOYRutxwnY9c6rna6xA:16
21839818030&source=lnms&tbm=isch&sa=X&ved=2ahUKEwi6tvGR4OHwA
hU28HMBHS84DksQ_AUoAXoECAEQAw&biw=1280&bih=578&dpr=1.5
3) https://www.investopedia.com/terms/i/indifferencecurve.asp
4) https://corporatefinanceinstitute.com/resources/knowledge/economics/indiffer
ence-curve/