Essay On Indifference Curves
Indifference curves show a combination of two goods that provide equal satisfaction to a consumer. They have the following characteristics: They are downward sloping to the right. This clearly indicates that they have a negative slope. This means that when more units of one good in the combination are consumed, less units of the other will be consumed. This occurs only if the level of satisfaction is to remain the same on an indifference curve. Indifference curves are convex to the origin which shows that there is a diminishing marginal rate of substitution. As more units of one commodity are consumed, less of the other will be consumed. Indifference curves do not intersect as this would make the consumer indifferent. A higher indifference …show more content…
It has the following assumptions: The consumer has a rational behavior: The consumer will always aim at maximizing his utility in a given period of time. Utility is ordinal: It assumes that utility cannot be measured but the consumer can rank his various combinations of goods according to the level of satisfaction derived from each in a given period of time. Diminishing Marginal rate of substitution: From the indifference curve properties, it implies that in order to consume more units of one good, less units of the other good will be consumed. Consistency in choice: The consumer is considered to be consistent in his behavior in a given period of time. If he prefers combination M of goods to combination N of goods, he must remain consistent. Consumer’s preferences not self-contradictory/transitivity: If combination M is preferred to combination N, and combination N preferred to O, then combination M is preferred to O. Two commodities are used by the consumer, say x and y. Two commodities x and y are substitutes of each other. These commodities can simply be substituted in various pairs. Consumer has full knowledge of prices in the
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