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Tuesday, 26 June 2018

Nature of Economics - Science of Human behaviour

   Indifference Curve and its Properties

 Indifference Curve is a curve which shows different combinations of two goods which gives equal satisfaction to the consumer who is spending his income on these two goods. This concept was given by Professor Hicks and Allen based on the concept that utility can be expressed only on the basis of scale of preference. Hicks and Allen criticised the concept given by Prof. Marshall who said that utility can be expressed in numbers. Here are five important properties of indifference curve discussed in detail.

Properties of Indifference Curve  

  1. Indifference curve slopes downward from left to right just because to increase quantity of one good consumer must have to sacrifice other. slope of indifference curve is also known as MRS ( Marginal Rate of Substitution). MRS is calculated  

     2.  Two ICs do not touch or intersect each Other. In the given diagram, AB=AC because A point is located on both curves. Accordingly B point must be equal to C point which is not correct because C represent higher satisfaction against B. Hence it is proved that ICs do not intersect each other.

     3.  IC do not touch X axis or Y axis because IC analysis is a concept in which consumer consumes two good and when IC touch X axis , Good X becomes Zero . It happens exactly when IC touch Y axis.

    4.   Higher IC always gives higher satisfaction

    5.   IC is convex to the origin because of decreasing MRS from left to right. Now question should come into mind that " why is IC convex to the origin" . Answer is simple. It happens due to Law of diminishing marginal utility. When consumer give up a good , his desire for such good starts to increase, consequently he want to sacrifice less and less quantity of good every time.

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