If two goods X and Y are perfect substitutes, the indifference curve is a straight line with negative slope, as shown in Figure 41 because the MRSXY is constant. In this case, the consumer does not distinguish between these two goods and regards them as the same commodity, such as two brands of tea.
How does the indifference curve to the origin?
Description: Graphically, the indifference curve is drawn as a downward sloping convex to the origin. The graph shows a combination of two goods that the consumer consumes. To the consumer, bundle A and B are the same as both of them give him the equal satisfaction.
Why does the indifference curve is convex to the origin and higher indifference curve shows higher levels of satisfaction?
An IC is always convex to the origin This is the diminishing marginal rate of substitution. The rate gives a convex shape to the indifference curve. Two commodities are perfect substitutes for each other – In this case, the indifference curve is a straight line, where MRS is constant.
Are complements monotonic?
With perfect complements, strict monotonicity does not hold; and with perfect substitutes, strict convexity does not hold. With perfect complements, identify the ratio in which the consumer likes to consume X and Y (it’s the slope of a line through the “corners” of the ICs).
Who introduced the concept of indifference curve?
Francis Y. Edgeworth
Developed by the Irish-born British economist Francis Y. Edgeworth, it is widely used as an analytical tool in the study of consumer behaviour, particularly as related to consumer demand.
Why does higher indifference curve give more satisfaction?
Higher indifference curve denotes a higher level of satisfaction. Higher indifference curve represents large bundle of goods, which means more utility because of monotonic preference. In the image we see, that IC2 gives more satisfaction than IC1 and IC3 gives more satisfaction than both IC1 and IC2.
Can indifference curve be concave?
Indifference curves can be straight lines if a slope is constant, resulting in an indifference curve represented by a downward-sloping straight line. If the marginal rate of substitution is increasing, the indifference curve will be concave to the origin.
Why are indifference curves convex to their origin?
Loading… In most cases, indifference curves (IC) are convex to the origin because of the diminishing marginal rate of substitution property that holds. Indifference curve shows combination of goods to which a consumer is indifferent between implying consumer gets same utility/ satisfaction from any bundle on that IC.
Is the indifference curve on a negatively sloped curve?
It is only on the negatively sloped curve that different points representing different combinations of goods X and Y give the same level of satisfaction to make the consumer indifferent.
How is an indifference curve arranged in order?
However, his preference for those combined products can be arranged in the order of preference. An indifference curve has a negative slope, i.e. it slopes downward from left to right. (say apples), quantity of another good (say oranges) must fall so that the total satisfaction (utility) remains same.
What does indifference mean on a simple graph?
The indifference curve analysis work on a simple graph having two-dimensional. Each individual axis indicates a single type of economic goods. 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 the consumer.
