It is therefore not necessary that the Indifference Curves should be parallel to each other. Indifference curve is convex to the origin As mentioned previously, the concept of indifference curve is based on the properties of diminishing marginal rate of substitution. They cannot bulge outward in the middle. We know that consumers in actual world do not generally buy and consume one good. Some of these important properties are as follows: 1. It follows that if a consumer wants to have more quantity of commodity X, he will have to give up some quantity of commodity Y in order to derive the same level of satisfaction.
Since by moving to the dotted portion he gets negative utility, the effective region of the circular curve will be the convex portion. Such a diagram is known as an indifference map where each indifference curve corresponds to a different indifference schedule of the consumer. The amount of air is irrelevant to your happiness. The level of satisfaction of consumer for any given combination of two commodities is same for a consumer throughout the curve. The scale of preferences implies that a consumer can conveniently arrange the various combinations of two or more goods available to him in order of his preferences. To prove this property, let us take indifference curves contrary to this assumption. Indifference curves are not necessarily parallel to each other.
The shape of the curve is determined by the rate of substitution between the two commodities. It means that as the amount X is increased by equal amounts that of Y diminish by smaller amounts. As the marginal significance of x declines, the tangent of the angle TtO should also decline as both are directly related in the figure. The same argument holds good in this case as developed above in the case of intersection of indifference curves. Simply, an indifference curve is a graphical representation of indifference schedule.
We know that total utility of commodity tends to increase with increase in stock of the commodity. There are alsoinstances where there is 0 slope or infinite slope if the quantityof a good is irrelevant to your enjoyment of it, like air. This is so because Indifference Curves are assumed to be negatively sloping and convex to the origin. But point C which lies on both the curves yields the same level of satisfaction as points A and B. Indifference Curve: Concept, Properties, Features, Examples A budget line represents all those combinations of the two commodities that the consumer can purchase, given his money income and the prices of the two commodities. If he increases his consumption of X so as to reach the dotted portion of the I 1 curve horizontally from point S to N he gets negative utility.
So, intensity of desire on good-X increases and good-Y decreases. It follows that the combination F will be equivalent to E in terms of satisfaction. The Indifference curves are used to examine preferences of consumer. Substitutes and complements The shape of an indifference curve is helpful to understand whether commodities under consideration are substitutes or complements. The illustration is given below with the help of a diagram.
The meeting of two indifference curves at a point will also lead us to an absurd conclusion. If it touches X-axis, as I 1; in Figure 12. Therefore, the indifference curve cannot slope upward from left to right. If it not like that, it should be either parallel to X axis or vertical or it should be an upward sloping curve as shown in the Figure 1. Consumers equilibrium by shifting to the right indicating that the consumer will reach a high level of satisfaction.
It means that the consumer to be indifferent to all the combinations on an indifference curve must leave less units of good Y in order to have more of good X. This property of the Indifference Curve is derived from the Law of Diminishing Marginal Rate of Substitution. This is an important assumption for making consistent choices among a large number of combinations. In other words, we can say that the combination of goods which lies on a higher indifference curve will be preferred by a consumer to the combination which lies on a lower indifference curve. Consumers have a preference for higher quantities. Although indifference curves come in many shapes and sizes, most of them share a few important properties.
But the rate o the slope may not necessarily be the same as shown in the following diagram: 8. The slope of the curve is referred as the Marginal Rate of Substitution. It is because at the point of tangency, the higher curve will give as much as of the two commodities as is given by the lower indifference curve. Therefore, the indifference curve cannot be vertical either. As we know that all indifference curve slope downward to right or they have negative slopes. We could map out my potential expenditures on one of these causes on an X axis, the other on a Y axis, and draw an indifference curve. But point C which lies on both the curves yields the same level of satisfaction as points A and B.
The slope of the curve becomes smaller as we move to the right. Concavity of the indifference curves is against the principle of diminishing marginal rate of substitution. These two indifference curves represent two different levels of satisfaction. Point A on the I 1 curve indicates a higher level of satisfaction than point B on the I 2 curve, as it lies farther away from the origin. Condition of Consumer Equilibrium Price line must be the tangent to indifference curve It is not necessary that price line cut indifference curve, but it is important that price line must be tangent to indifference curve. This shows that the marginal significance of x in terms of y is declining as the consumer travels down an indifference curve and has more units of x. Let us look at the following figure 1.
The same reasoning applies if two indifference curves touch each other at point С in Panel B of the figure. For this reason, an indifference curve always has a negative slope. We therefore conclude that indifference curves are generally convex to the origin. To prove this, let us take a concave curve where the marginal rate of substitution of X for Y increases instead of diminishing, i. Indifference curves can never intersect each other: As two indifference curves cannot represent the same level of satisfaction, they cannot intersect each other. In reality, Indifference Curves are like Bangles: But as a matter of principle their effective region is in the form of segments.