A Business Encyclopedia

Properties of Indifference Curve

Definition: The Indifference Curve is the graphical representation of the combination of two goods, that gives equal satisfaction and utility to the consumer.

Properties of Indifference Curve

  1. Downward Sloping: An indifference curve slope downward, which means, that with the more consumption of one good the consumption of the other is to be reduced to maintain the utility.Here, the principle of the marginal rate of substitution (MRS) applies, which means the increased consumption of one commodity is to be set off by the reduced consumption of another commodity, so as to have the same level of satisfaction or utility. Thus, the indifference curve is negatively sloped.Property 1
  2. Convex to the Origin: The indifference curves are convex to the origin because of the diminishing marginal rate of substitution. The MRS diminishes because of the decline in the marginal utility, which means with more and more consumption of one commodity, the customer’s utility starts declining and he is not willing to consume it more at the cost of the other commodity.For example, let’s say there are two chocolates, dairy milk, and Nestle, with more and more consumption of dairy milk chocolates the utility continues to decline, and the customer will no more give up the Nestle chocolates to buy the dairy milk. Here, MRS shows the slope of the indifference curve.Property 2
  3. Higher the indifference curve, the higher is the level of satisfaction: The consumer derives more satisfaction from the combination of two goods on a higher indifference curve because more units of both the commodities are used that will surely be more satisfying than the lower quantity combinations.Property 3
  4. Cannot Intersect or be tangent to each other: The indifference curves can not intersect with each other, because if it does so, then the combinations of two commodities lying on two different curves will yield the same level of satisfaction which is not 4

Thus, it is clear from the properties of the indifference curve that the customer realizes an equal satisfaction and the utility from the use of different combinations of two commodities.

Leave a Reply

Your email address will not be published. Required fields are marked *


Related pages

rbi neft batch timingsmonopolistic characteristicshedging definition financedelphi methodpolycentric pricing strategyinnovators meaningjoseph a schumpeterapple strategic alliances360 degree marketing definitionbases of segmentationspearmans rank equationtakeover defence tacticswhy is frictional unemployment inevitabledefinition of pertdefine thematicswhat is sealed bid pricingid ego superego simple definitions7cs of communication skills with examplesexplanation of brandingcontractual vms examplesdefine segmentingthe employees provident fundisoquant economicsdefine sale and leasebackwhat are sampling distributionsdefinition of ppfdemand forecasting statistical methodspayback meaningporters competition modelpromotion mix elementsmaslows need hierarchyindifference analysis definitionexplain stratified samplingleadership autocraticdefine depreciableopen end mutual fund definitionjohari window feedbacksalivation meaningbuzz marketing definitiontwo bin system in inventory managementprice elasticity of demand of luxury goodsdefinition of lessee and lessordefinition of autocratic leadership styledefine mncquing theorymanagerial grid blake moutonbudget line slopeholistic approach meaning in hindimanagerial grid leadership stylehr audit definitionbuy out definitionobt trainingvague hindi meaningpayroll dashboardprovident fund definitionformula of stock turnover ratiodefinition of borrowingsfive porters forcesexplain the law of diminishing marginal returnswhat are formal and informal groupspoison pill definitionmarket development strategy ansofffrontal attack in marketingexample of judgemental samplingmemorandum of association and its clauseswhat does denotative meancauses of demand pull inflation and cost push inflationcharacteristics of monopolistic competition and oligopolyautocratic modelbudget deficits definitionmeaning providentwhat does return on capital employed meanbases market segmentationwhat is the definition of rationingwhat is market segmentation explain with examples