Economics (NCERT) Notes

2.4 Features of Indifference Curve

Monotonic Preferences
•Consumer’s preferences are assumed to be such that between any two bundles (x1, x2) and (y1, y2), if (x1, x2) has more of at least one of the goods and no less of the other good compared to (y1, y2), then the consumer prefers (x1, x2) to (y1, y2).
•Preferences of this kind are called monotonic preferences. 
•Thus, a consumer’s preferences are monotonic if and only if between any two bundles, the consumer prefers the bundle which has more of at least one of the goods and no less of the other good as compared to the other bundle.
 
Indifference Map
 

•The consumer’s preferences over all the bundles can be represented by a family of indifference curves as shown in Figure
•This is called an indifference map of the consumer.
•All points on an indifference curve represent bundles which are considered indifferent by the consumer.
•Monotonicity of preferences imply that between any two indifference curves, the bundles on the one which lies above are preferred to the bundles on the one which lies below.
 
Features of Indifference Curve
1. Indifference curve slopes downwards from left to right
2. Higher indifference curve gives greater level of utility
3. Two indifference curves never intersect each other
 
1. Indifference curve slopes downwards from left to right
 

•An indifference curve slopes downwards from left to right, which means that in order to have more of bananas, the consumer has to forego some mangoes.
•If the consumer does not forego some mangoes with an increase in number of bananas, it will mean consumer having more of bananas with same number of mangoes, taking her to a higher indifference curve.
•As long as the consumer is on the same indifference curve, an increase in bananas must be compensated by a fall in quantity of mangoes.
 
2. Higher indifference curve gives greater level of utility
•As long as marginal utility of a commodity is positive, an individual will always prefer more of that commodity, as more of the commodity will increase the level of satisfaction.
 
Representation of different level of utilities from different combination of goods
 

 

•Combinations A, B and C consist of same quantity of mangoes but different quantities of bananas.
•Since combination B has more bananas than A, B will provide the individual a higher level of satisfaction than A.
•Therefore, B will lie on a higher indifference curve than A, depicting higher satisfaction.
•C represents even higher satisfaction.
 
3. Two indifference curves never intersect each other
 

•Two indifference curves intersecting each other will lead to conflicting results.
•Imagine that two indifference curves to intersect each other as shown in the figure
•As points A and B lie on the same indifference curve IC1, utilities derived from combination A and combination B will give the same level of satisfaction.
•Similarly, as points A and C lie on the same indifference curve IC2, utility derived from combination A and from combination C will give the same level of satisfaction.
•It follows that utility from point B and from point C will also be the same.
•But this is clearly an absurd result, as on point B, the consumer gets a greater number of mangoes with the same quantity of bananas.
•So consumer is better off at point B than at point C.
•Thus, it is clear that intersecting indifference curves will lead to conflicting results.
•Thus, two indifference curves cannot intersect each other.
 

 




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