Some of the properties are: 1. The consumer has to reach the highest possible scale of reference. If combination F is equal to combination B in terms of satisfaction and combination E is equal to combination B in satisfaction. This means, any combination of two goods on the higher curve give higher level of satisfaction to the consumer than the combination of goods on the lower curve. Rather, it makes use of ordinal numbers like 1 st, 2 nd, 3 rd, 4 th, etc.
At point B, the consumer has much pizza and little Pepsi, so he requires only a little extra Pepsi to induce him to give up one of the pizzas The marginal rate of substitution is 1 pint of Pepsi per pizza. Similarly, an indifference curve cannot be vertical as shown in the figure, as in point D, the consumer gets more of y commodity than at point C, B or A while the x commodity remains constant; so the consumer cannot be indifferent to various combinations as they denote different satisfactions. Consumer choices are consistent with a simple postulate of rationality. The main attributes or properties or characteristics of indifference curves are as follows: 1 Indifference Curves are Negatively Sloped: The indifference curves must slope down from left to right. Thus the indifference curve I 4 indicates a higher level of satisfaction than I 3 which, in turn, is indicative of a higher level of satisfaction than I 2 and so on.
Every Indifference Curve to the right represents Higher Level of Satisfaction than that of the Proceeding One and Others. This forms a diminishing marginal rate of substitution. If combination F is equal to combination B in terms of satisfaction and combination E is equal to combination B in satisfaction. In reality, commodities are not perfect substitutes or perfect complements to each other. Indifference curve cannot intersect each other Each indifference curve is a representation of particular level of satisfaction. However, it was brought into extensive use by economists J. Now, I want more puppies, but less garbage.
Point T lies beyond his income range and hence is not feasible. This property of the Indifference Curve is derived from the Law of Diminishing Marginal Rate of Substitution. The indifference curve analysis measures utility ordinally. To prove this, let us take a concave curve where the marginal rate of О substitution of X for K increases instead of diminishing, i. An indifference curve shows various combinations of two goods that provides equal level of satisfaction to consumer. Consumers have a preference for higher quantities. There are many definitions of Economics.
Diagram: 3 Indifference Curves are Convex to the Origin: This is an important property of indifference curves. First, the budget line should be tangent to the indifference curve in more technical terms, the slope of the budget line should equal the slope of the indifference curve. Indifference curves never intersect each other. In the same way, we can see other combinations as 3 cigarettes + 5 cup coffee, 4 cigarettes + 3 cup coffee and 5 cigarettes + 2 cup coffee. But these that points A and C would also make the consumer equally happy, even though point C has more of both goods.
In case of perfect substitutes, the indifference curves are parallel straight lines because the consumer equally prefers the two goods and is willing to exchange one good for the other at a constant rate. The indifference curves cannot intersect. In indifference curve approach, this assumption has been dropped. This property is derived from the law of diminishing marginal rate of substitution. Hence, at point A, both the curves yield same level of satisfaction. If to compensate himself for this loss of utility, he increases the consumption of Y, he may be again on the dotted portion of the curve, vertically from point S to M. If we assume that we know the prices of two commodities we can list down a number of comparisons combinations of two commodities that the consumer can actually buy in the market.
The curves that are farther away from the origin represent higher levels of satisfaction as they have larger combinations of X and Y. Point A on the I 1 curve indicates a higher level of satisfaction than point В on the I 1 curve, as it lies farther away from the origin. If an indifference curve touches horizontal axis or vertical axis, it implies that the customer prefers only one commodity because when it touches axes, one of the commodities becomes zero quantity. We therefore conclude that indifference curves cannot cut each other. The slope of an indifference curve shows the rate of substitution between two goods, i. Thus the consumer may be on the concave portion of the circular curve. It would mean that every point on the two separate indifference curves would have the same utility, which is the complete opposite of the first rule of indifference curves, that all points on them have the same utility.
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. It means, if consumer likes mangoes more than oranges then he can give first rank to mangoes and second rank to oranges. Then, because point A is on the same indifference curve as point B, the two points would make the consumer equally happy. To prove this, let us take a concave curve where the marginal rate of substitution of X for Y increases instead of diminishing, i. It implies that the consumer still has the willingness to consume more of both the goods.