Answered: What is an indifference curve? Also…

Economics (MindTap Course List)

13th Edition

ISBN:9781337617383

Author:Roger A. Arnold

Publisher:Roger A. Arnold

ChapterE: Budget Constraint And Indifference Curve Analysis

Section: Chapter Questions

Problem 4QP

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What is an indifference curve? Also elaborate its different possibilities under the different circumstances.

Expert Solution

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The indifference curve is the curve which shows the different combination and bundle of two goods that can provide the same level of satisfaction to the consumers of those goods. Each and every point on the IC (indifference curve) provides the same level of utility and the consumer is always indifferent between every point on the IC.

The slope of the IC is the marginal rate substitution (MRS) which can be defined as the amount of good 2 that consumer is willing to give up to consume one additional unit of good 1.

The IC is characterized by the following properties:

IC is negatively sloped –This is due to the assumption of monotonicity which means more is preferred. It shows that if the quantity of one good increases in the combination, the quantity of other good will decrease to keep the utility same.
IC is strictly convex to origin due to the average consumption bundle is preferred over extreme consumption bundle and due to diminishing MRS.
IC cannot intersect to each other due to the assumption of transitivity.
Higher IC represents higher utility due to the assumption of monotonicity which means more is preferred as the higher IC show higher utility.

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