An indifference curve is a graphical representation of a combined products that gives similar kind of satisfaction to a consumer thereby making them indifferent. Every point on the indifference curve shows that an individual or a consumer is indifferent between the two products as it gives him the same kind of utility.
What is indifference curve example?
An indifference curve shows all combinations of goods that provide an equal level of utility or satisfaction. For example, Figure 1 presents three indifference curves that represent Lilly’s preferences for the tradeoffs that she faces in her two main relaxation activities: eating doughnuts and reading paperback books.
What is indifference curve importance?
The indifference curve technique has come as a handy tool in economic analysis. It has freed the theory of consumption from the unrealistic assumptions of the Marshallian utility analysis. In particular, mention may be made of consumer’s equilibrium, derivation of the demand curve and the concept of consumer’s surplus.
How indifference curve can be used in the society?
Use of indifference curves in practice in solving society’s problems. It can be used in determining allocation of resources to production or social services. Firms and Government can employ indifference curves of different consumers to analyze what consumers prefer if faced with choice and limited resources.
What is the definition of the indifference curve?
Indifference Curve. Definition: The Indifference Curve shows the different combinations of two goods that give equal satisfaction and utility to the consumers. In other words, the indifference curve is the graphical representation of different combinations of goods (generally two), for which the consumers are indifferent,…
Which is better IC1 or IC2 indifference curve?
This is because a higher indifference curve implies a higher level of satisfaction. Therefore, all combinations on IC1 offer the same satisfaction, but all combinations on IC2 give greater satisfaction than those on IC1. This is the rate at which a consumer is prepared to exchange a good X for Y.
What does it mean when indifference curve touches both axes?
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. Since a higher indifference curve represents a higher level of satisfaction, a consumer will try to reach the highest possible IC to maximize his satisfaction.
Why is the indifference curve called the ISO-utility curve?
This is because an individual consumes a variety of goods over time and realises that one good can be substituted with another without compromising on the satisfaction level. When these combinations are plotted on the graph, the resulting curve is called indifference curve. This curve is also called the iso-utility curve or equal utility curve.
