Chapter indifference curve chapter notes, micro economics. An alternative approach to understanding consumer choice learning objectives 1. The negative slope of the indifference curve implies that the marginal rate of substitution is always positive. If a curve does not have a negative slope as shown in figure 3, it cannot be an indifference curve. Applications and uses of indifference curves explained with diagram. By definition, an indifference curve shows all the various combinations of two goods that give an equal amount of satisfaction to a consumer. The cardinal utility approach, though very useful in studying elementary consumer behavior, is criticized for its unrealistic assumptions vehemently. Four properties of indifference curves quickonomics. The indifference curve indicates the various combinations of two goods which yield equal satisfaction to the consumer.
Law of diminishing marginal utility dmu, assumptions of law of dmu, relationship between totally utility and marginal utility. What is the significance of indifference curve analysis in. The indifference curves must slope down from left to right. Using indifference curve analysis, the consumer optimization point is a. Explain what properties of consumer preference orderings imply that indifference curves never cross, and are always downward sloping and convex. Identify and understand the individual factors that affect consumer buying decisions. In order to remain on the same level of satisfaction same indifference curve, the consumer must sacrifice one commodity for another. Nov 11, 2014 this lecture talks about indifference curve analysis and demand analysis. Propertiescharacteristics of indifference curve definition. What is the importance of the indifference curve analysis in. An indifference curve is a graph showing combination of two goods that give the consumer equal satisfaction and utility.
Indiference curve analysis,ppt microeconomics economic. Browse more topics under theory of consumer behavior. Important questions for class 12 economics budget set. Indifference curve analysis and its properties pdf download.
They were of the opinion that utility is a psychological phenomenon and it is next to impossible to measure the utility in absolute terms. This is based on consumer preference and believes that we cannot quantitatively measure human satisfaction in monetary terms. Indifference curve analysis the relationship between the price world and the utility world in chapter 11 is explained by juxtaposing two diagrams, figures 3 and 2. Draw a consumers indifference curves for wine and cheese. Indifference curves and utility maximization indifference curve a curve that shows combinations of goods which gives the same level of satisfaction to the slideshare uses cookies to improve functionality and performance, and to provide you with relevant advertising. The various assumptions of the analysis are explained below. An indifference curve represents a series of combinations between two different economic goods, between which an individual would be theoretically indifferent regardless of. However, the fact is that you can draw an infinite number of indifference curves between two indifference curves. If and only if indifference curves are strictly convex, they are smooth. Application of indifference curve analysis changes in.
But, still it is criticised by many economists due to some unrealistic assumptions, it is based upon. They broke down the components of a cookie, the texture, the. However, it does not directly show the relationship between the price of a good and its corresponding quantity demanded. An indifference curve represents a series of combinations between two different economic goods, between which an individual. Learn characteristics of indifference curves with free interactive flashcards. According to the indifference curve approach, it is not possible for the consumer to say how much utility he derives from the consumption of a commodity, because utility is not a measureable magnitude. The indifference curve shows the different combinations of two goods that give equal satisfaction and utility to the consumers. In economics, an indifference curve connects points on a graph representing different quantities of two goods, points between which a consumer is indifferent. When one arrives at two options that are indifferent to the individual, these two points that represent them are on the same indifference curve. Indifference curve analysis part 2 10 questions 804 attempts economics, consumption, indifference curves, indifference map, marginal rate of substitution, properties of indifference curves, price line and consumers equilibrium, economics ap, microeconomics ap, ap microeconomics, ap economics, indifference curve analysis part 2 contributed by. If the graph is on the curve or line, then it means that the consumer has no preference for any goods, because all the good has the same level of satisfaction or utility to. This video explains why a set of indifference curves for an economically rational individual cannot cross.
This means that an indifference curve is negatively sloped. Apr 17, 2020 chapter indifference curve chapter notes, micro economics, class 12 edurev notes is made by best teachers of commerce. So, with 2, no two curves can intersect otherwise nonsatiation. Microeconomics indifference curves flashcards quizlet. Indifference curve being downward sloping means that when the amount of one good in the combination is increased, the amount of the other good is reduced. An alternative approach to understanding consumer choice learning objectives explain utility maximization using the concepts of indifference curves and budget lines. The main attributes or properties or characteristics of indifference curves are as follows. We have already seen how the price consumption curve traces the effect of a change in price of a good on its quantity demanded. Curvature of indifference curve, which indicates the rate at which the consumer is willing. The indifference curve analysis measures utility ordinally. Explain utility maximization using the concepts of indifference curves and budget lines. Sample pictures of indifference curves may show you one or two indifference curves.
This document is highly rated by commerce students and has been viewed 33202 times. The indifference curve analysis work on a simple graph having twodimensional. It is the demand curve that shows relationship between price of a good and its quantity demanded. This approach assigns an order to consumer preferences rather than measure them in terms of money. Indifference curve analysis is basically an attempt to improve cardinal utility analysis principle of marginal utility. Each point on an indifference curve indicates that a consumer is indifferent between the two and all points give him the same utility. Msc in economics for development macroeconomics for development week 3 class sam wills department of economics, university of oxford. Allen in their research paper, a reconsideration of the theory of value. Consumers budget it is the real purchasing power of consumer from which he can purchase the certain quantitative bundles of two goods at a given price 2. Prepare for examinations and take any number of courses from various topics on unacademy an education. Read this article to learn about indifference curves.
Explain the notion of the marginal rate of substitution and how it relates to. Consumers equilibrium notes microeconomics cbse class. Free indifference curve analysis online practice tests. In other words, the indifference curve is the graphical representation of different combinations of goods generally two, for which the consumers are indifferent, in terms of the overall satisfaction and the utility. An indifference curve shows combination of goods between which a person is indifferent. Topic applications of indifference curve analysis 4 14 166. Further, schumpeter says, the new technique has neither proved anything new, nor has proved anything old, wrong. For this reason, an indifference curve always has a negative slope. Notes for cbse class 11th chapter 2 consumers equilibrium.
Moving from point a to point b, we are willing to give up 4 apples to get a second mango total utility is the same at points a and b. Complete, such that all points on an indifference curve are ranked equally preferred and ranked either more or less preferred than every other point not on the curve. Indifference curve shows a bundle of goods which make a consumer equally happy. Indifference curvesbudget lines a c b d e income 100 income 140 income 124 utility 714 utility 892 q2 q1 economics 101 spring 2001 section 4 hallam exam 2a blue for questions 16 consider the diagram below. Point a shows consumption bundle consisting of 15 apples and one mango. Indifference curve analysis suggests that the rational consumer has many such points of indifference, depending on the budget available to them, and on other significant factors which affect the consumers preferences between two goods. Every indifference curve to the right represents higher level of satisfaction than that of the proceeding one and others. That is, any combinations of two products indicated by the curve will provide the consumer with equal levels of utility, and the consumer has no preference for one combination or bundle of goods over a different combination on the same curve. Sep 28, 2019 indifference curves are widely used in microeconomics to analyze consumer preferences, the effects of subsidies and taxes, and a few other concepts. The indifference curve analysis was developed by the british economist francis ysidro edgeworth, italian economist vilfredo pareto and others in the first part of the 20th century.
An alternative approach to understanding consumer choice, section 7. Learn vocabulary, terms, and more with flashcards, games, and other study tools. Let us make an indepth study of the definition, diagram, assumptions, properties, budget line, equilibrium and analysis of indifference curve. A popular alternative to the marginal utility analysis of demand is the indifference curve analysis. The axiom of strict convexity suggest that, given any consumption bundle y, its better set a strictly convex. Top 6 properties of indifference curve with diagram.
The following points highlight the top six properties of indifference curve. We now describe in brief as to how indifference curves and budget lines can be used to analysis the effects on consumption due to a changes in the income of a consumer b changes in the price of a commodity. Indifference curve analysis can be used to explain an individuals choice between income and leisure and to show why a higher overtime wage rate must be paid if more hours of work are to be obtained from the workers. Characteristics of indifference curves with diagram. If ther e is an exogenous requirement that the individual locate him. Which of the following violates the properties of indifference curves.
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. Utility functions and indifference curves questions 1 for the part of the function shown in the graph, are preferences complete. Students should solve the cbse issued sample papers to understand the pattern of the question paper which will come in class 12 board exams this. Read this article to learn about the meaning, property and assumption of indifference curve. Indifference curves analysis is based upon some assumptions, which determine its strength, applicability and shortcomings. What is the significance of the curvature of the indifference curves and how does this relate to the marginal rate of substitution.
Topic applications of indifference curve analysis 4 14 166 natalie is always from eco 5305 at smith college. Modern economists disregarded the concept of cardinal measure of utility. This assumption implies that the consumer has not reached the point of. As we discussed earlier, indifference curves are usually convex to the origin. An indifference curve is convex to the origin because of diminishing mrs. Theory of consumer behaviour important questions for class 12 economics budget set, budget line and consumer equilibrium through indifference curve analysis or ordinal approach 1. Download cbse class 12 economics indifference curve analysis in pdf, questions answers for economics, cbse class 12 economics indifference curve analysis. 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. Indifference curve analysis of consumers equilibrium. The function and its basic properties utility function properties concave utility function monotonic.
It explains consumer behaviour in terms of his preferences or rankings for different combinations of two goods, say x and y. The concept of indifference curve analysis was first propounded by british economist francis ysidro edgeworth and was put into use by italian economist vilfredo pareto during the early 20 th century. When one arrives at two options that are indifferent to the individual, these two points that represent them are on the same indifference. The indifference curves have a number of attributes and interesting properties which have come to be known as characteristic features or properties of indifference curves. In this lesson we will discuss introduction to indifference curve analysis and its assumptions hindi economics class 12 indifference curve and budget line. Applications and uses of indifference curves explained. What are the properties of the indifference curves. This property shows that any increase in the amount of one commodity is accompanied by a reduction in amount of other. For more information and a complete listing of videos and online articles by topic or. Mrs declines continuously because of the law of diminishing marginal utility. Using indifference curve analysis the consumer optimization. Indifference curve analysis is claimed to be superior to utility analysis because of its closeness to the reality. Properties indifference curve have a negative slope. The properties of indifference curve follow from its definition and the assumptions upon which indifference curve approach is based.
Baumol has taken three main assumptions of nonsatiety, transitivity and diminishing marginal rate of substitution. Jan 12, 2018 the concept of indifference curve analysis was first propounded by british economist francis ysidro edgeworth and was put into use by italian economist vilfredo pareto during the early 20th century. There are four important properties of indifference curves that describe most of them. Thus, we will look at the four most important properties of indifference curves in more detail below.
Kraft saw that their oreo cookie was the most popular cookie in america. Convexity of indifference curve implies the marginal rate of substitution of x for y decreases. Indifference curves are always convex to the origin. The indifference curves for wine and cheese and the properties of indifference curves. Cbse class 12 economics indifference curve analysis. Msc in economics for development macroeconomics for. Although they come in many shapes and sizes, most of them share a few important properties. Properties of indifference curve consumer equilibrium in case of 2 commodity indifference curve delivery procedure of my book contact for. Choose from 254 different sets of characteristics of indifference curves flashcards on quizlet.
Jun 02, 2017 most generally and assuming youre referring to a utility map, it helps us understand the combinations of goods that lead to various levels of utility and most importantly helps us understand which combination maximizes utility subject to a bud. Scribd is the worlds largest social reading and publishing site. Mar 24, 2020 indifference curve analysis is basically an attempt to improve cardinal utility analysis principle of marginal utility. The correct and the in correct 17 beers makes both parties better off, since both point g 10 beers and point h 10 apples are preferred to point f 5 of each. They slope negatively or slope downwards from the left to the right 2. A set of indifference curves is called an indifference map. In this chapter we first explain what indifference curves are, and indicate their important properties. Each individual axis indicates a single type of economic goods. This property implies that an indifference curve has a negative slope. Indiference curve analysis,ppt free download as powerpoint presentation.
The possibility of concavity cannot be ruled out in some exceptional cases. The indifference approach analyse a variety of other choices, apart from consumers choices between different goods and services. I appealed to your intuiti on to establish the logical connection between them. The indifference curve is a graph showing the different combinations of two goods that report the same satisfaction to a person, and are preferred to other combinations.
Cbse issues sample papers every year for students for class 12 board exams. This lecture talks about indifference curve analysis and demand analysis. Free properties of indifference curves online practice tests. Indifference curve analysis and demand analysis youtube. The difficulty with a rejection of transitivity which underlies indifference curve analysis is a reductio ad absurdum, based upon. In microeconomics, the indifference curve analysis is an important analytical tool in the study of consumer behaviour. Sep 28, 2011 indifference curve ic shows all possible combinations of apples and mangoes between which a person is indifferent. However, it was brought into extensive use by economists j.
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