Features Of Indifference Curve

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What is an Indifference Curve?

The indifferent curve is a graphical representation of the utility of two products that offer similar kinds of satisfaction to a consumer.

In other words, it is a graphical representation that shows the indifference of consumers towards two products. These products offer the same satisfaction to the consumer. Each point on the indifferent curve shows that the consumer derives the same utility and hence they are indifferent in terms of choice for the products.


The indifference curve compares the utility of the products instead of the price and this shows the consumer choice for the product. As shown on the graph above, at any point, T, Good X is substitutable by Good Y. These points show the indifference between two goods. However, indifference cannot be found on any other point than the curve on the graph. Indifference is applicable to the points on the curve. This is an exclusive quality of an indifferent curve.

An indifference curve may show how consumer preferences and budget constraints may affect their decisions of buying the products. There are other applications of indifferent curves too. These curves can be used in welfare economics via marginal utility theory.

Analysis of Indifference Curve

The functionality of indifference curves can be explained in many ways. It is notable that the indifference curve has an origin point and there are no intersections between any sorts of pairs of indifference curves. It has been found that consumers are more inclined toward or are more interested in preferring a combination of products that is high on the indifference curve.

Example

The following example will help understand the situation better.

Suppose someone has one scoop of ice cream and 12 packets of chips. When asked how many packets of chips he is willing to give up for an additional scoop of ice cream, he replies he can give up six units of chips. Now, we have two situations at hand.

The person gains satisfaction from having 1 scoop of ice cream and 12 packs of chips.

He is also satisfied with 2 scoops and 6 chips packs.

When the person is offered more choices, the following scenario comes up.

Combinations Ice cream scoops Chips packets
A 1 12
B 2 6
C 3 4
D 4 3

If we plot the combinations on a graph we will get an indifference curve.

Any combination lying on the indifference curve of the person will give the same level and kind of satisfaction to him.

The analysis of an Indifference Curve can be done on a simple two-dimensional graph. Each axis of the graphical representation indicates a specific type of product. When the graph lies on a curve or line, it means that the consumer almost does not have any preference for any product. This is so because all of the products will deliver the same kind of utility or satisfaction to the consumer on the graph or line.

Indifference Map

The indifference map is a set of two or more indifference curves. In the graphical representation above if we draw two or more indifference curves, the graphical representation will be known as an indifference map.

On each of the indifference curves, the consumer is indifferent to the combinations of the two products. Also, consumers prefer the indifference curve that is placed higher on the graphical representation because higher graphs show more utility from the combinations of products.

An indifferent map can be considered as one curve’s shift downward or upward. As the satisfactions derived from two products go up, the indifference curve will shift upwards. When the satisfaction levels go down, the curve will shift down because the consumers will derive less utility from the combination of the pair of products.

The shift of indifferent curves also helps to illustrate why no intersection takes place between two indifference curves while drawing an indifference map. As the whole curve shifts upwards and downwards, the curves lie parallel to each other and do not intersect.

Features of Indifferent curves

Some of the key features of Indifference Curve are as stated below.

Indifference curves always slope downwards from left to right

The indifference curves have a negative slope, i.e. they slope downwards from lift to tight. The reason for this is that if a consumer wants to have more of one commodity, the other commodity must be slashed in a proportional amount. The opposite of this is also true. When a consumer gets less of one commodity, he must opt for more of another commodity.

If such changes do not occur, the consumer will be unable to derive the same satisfaction from the combination of commodities. That is why the curve gets a negative slope and moves from left to right.

An indifference curve is always strictly convex to the origin

The shape of the indifference curve is such that they always form a convex shape to the origin. This is related to the law of diminishing marginal utility. The law of diminishing marginal utility states that a consumer tends to sacrifice lesser units of a commodity for every extra unit of another good. That means that the consumer will only give up the exact amount that needs to be given up.

Nothing extra or additional units will be offered when the proportions of two commodities are exchanged. The diminishing marginal utility is applicable to all indifferent curves.

Higher levels of satisfaction are obtained from higher level indifference curves

It is observed that higher levels of indifference curves represent higher levels of satisfaction. It is notable that higher levels of the curves indicate more bundles of products. It is the quality of consumers that they will always seek more of a product bundle that they prefer because it will offer more satisfaction to them. So, consumers may want more amounts of both goods or of at least one leading to a preference for higher levels of indifference curves.

It is also assumed that consumer preferences are often monotonic in nature. This means that they always want more of a product to get more production out of it. As the quantity of the product goes up, its overall consumption rate goes up and along with it, the satisfaction level also goes up.

Conclusion

Indifference curves can show the overall comparison of satisfaction levels derived from two products. They are proportional in nature meaning that the satisfaction derived from the two products remains the same over the course of time. Therefore, when the demand for one product goes up, the demand for the other comes down. This helps economists and analysts determine the comparative demands of products that are used to show the overall demand for one product at a certain point in time.

The indifference curves are very useful because they are related directly to consumer choices and preferences. Due to this property, indifference curves are a popular tool to yield the total demands of a commodity in the market when the availability of the other commodity is known.

FAQs

Qns 1. What is an indifference curve? How many products are compared in an indifference curve?

Ans. The indifferent curve is a graphical representation of the utility of two products that offer similar kinds of satisfaction to a consumer. Two products are used in the comparison while drawing the indifference curve.

Qns 2. What is the slope of an indifference curve?

Ans. The indifference curves have a negative slope that is downwards and from left to right.

Qns 3. Can two indifference curves intersect on an indifference map?

Ans. No. Indifference curves on an indifference map never intersect each other.

raja
Updated on 13-Oct-2022 11:19:47

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