Indifference curve theory assumes that preferences will be consistent, given the same information and constraints. In other words, if the decision-making context for an individual remains constant on both Monday and Tuesday, then a consumer will have the same order of preference on Tuesday as on Monday.

What is the indifference curve theory?

An indifference curve shows a combination of two goods that give a consumer equal satisfaction and utility thereby making the consumer indifferent. Along the curve, the consumer has an equal preference for the combinations of goods shown—i.e. is indifferent about any combination of goods on the curve.

Who gave indifference curve theory?

Developed by the Irish-born British economist Francis Y. Edgeworth, it is widely used as an analytical tool in the study of consumer behaviour, particularly as related to consumer demand.

What is the meaning of indifference analysis?

A popular alternative to the marginal utility analysis of demand is the Indifference Curve Analysis. This is based on consumer preference and believes that we cannot quantitatively measure human satisfaction in monetary terms.

What is indifference curve with examples?

An indifference curve shows all combinations of goods that provide an equal level of utility or satisfaction. For example, Figure 1 presents three indifference curves that represent Lilly’s preferences for the tradeoffs that she faces in her two main relaxation activities: eating doughnuts and reading paperback books.

What is cardinal utility theory?

Cardinal Utility is the idea that economic welfare can be directly observable and be given a value. For example, people may be able to express the utility that consumption gives for certain goods. … The idea of cardinal utility is important to rational choice theory.

What are indifference and indifference maps?

A graph of indifference curves for several utility levels of an individual consumer is called an indifference map. Points yielding different utility levels are each associated with distinct indifference curves and these indifference curves on the indifference map are like contour lines on a topographical graph.

What are the two properties of indifference curve?

The four properties of indifference curves are: (1) indifference curves can never cross, (2) the farther out an indifference curve lies, the higher the utility it indicates, (3) indifference curves always slope downwards, and (4) indifference curves are convex.

What do you mean by indifferent?

1a : marked by a lack of interest, enthusiasm, or concern for something : apathetic indifferent to suffering and poverty. b : marked by no special liking for or dislike of something indifferent about which task he was given.

Which indifference curve represents the highest level of satisfaction?

Higher indifference curve represents higher level of satisfaction. In other words, any combination of goods which lie on a higher indifference curve represents higher level of satisfaction as consumer is able to buy more of goods on a higher IC.

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What is indifference curve introduction?

Definition: An indifference curve is a graph showing combination of two goods that give the consumer equal satisfaction and utility. Each point on an indifference curve indicates that a consumer is indifferent between the two and all points give him the same utility.

Why indifference curve is convex?

Indifference curves are convex to the origin because as the consumer begins to increase his or her use of one good over another, the curve represents the marginal rate of substitution. … The marginal rate of substitution goes down as the consumer gives up one good for another, so it is convex to the origin.

What is the importance of indifference curve?

The indifferent curve analysis is used in measuring the cost of living or standard of living in terms of index numbers. We come to know with the help of index numbers whether the consumer is better off or worse off by comparing two time periods when the income of the consumer and prices of two goods change.

What is Mrs class 11th?

The marginal rate of substitution refers to the rate at which the consumer substitutes one good, to obtain one more unit of the other good.

What is indifference map in economics?

Definition: The Indifference Map is the graphical representation of two or more indifference curves showing the several combinations of different quantities of commodities, which consumer consumes, given his income and the market price of goods and services.

What is indifference schedule?

An indifference schedule is a list of combination of two commodities, the list being so arranged that a consumer is indifferent to the combinations, preferring none of them to any of other. … Different combinations of the following two commodities give the same total satisfaction to the consumer.

What is difference between cardinal and ordinal utility?

Cardinal utility is the utility wherein the satisfaction derived by the consumers from the consumption of good or service can be measured numerically. Ordinal utility states that the satisfaction which a consumer derives from the consumption of product or service cannot be measured numerically.

Who introduced Cardinal approach theory?

It was Alfred Marshall who first discussed the role played by the theory of utility in the theory of value. In Marshall’s theory, the concept of utility is cardinal. The price that a consumer is willing to pay for a good is an indication of the utility of that good to the consumer.

What is indifference map with diagram?

Indifference map refers to a set of indifference curves. An indifference curve which is to the right and above another shows a higher level of satisfaction to the consumer. Here, IC3 shows higher level of satisfaction than IC2. Thus, the indifference curve relates to a higher level of income of the consumer.

What is the cause of indifference?

Apathy can be a symptom of mental health problems, Parkinson’s disease, or Alzheimer’s disease. It often lasts a long time. You may lack the desire to do anything that involves thinking or your emotions. The term comes from the Greek word “pathos,” which means passion or emotion.

How do you use indifference?

1. Constable’s landscapes met with indifference when they were first exhibited.
2. He feigned indifference to criticism of his work.
3. She showed total indifference to his fate.
4. Ellis spoke with a casual indifference that he did not feel.
5. She adopted an attitude of supreme indifference.

Is indifference a good thing?

It is good to be passionate about one or two things and it is okay to be indifferent to everything else. Indifference is simply the absence of feeling for or against. It is to say, “I’m simply not thinking about that right now. … Better to make good decisions about a few things than bad decisions about a lot of things.

Can indifference curve be a straight line?

Yes, the indifference curve can be a straight line if both the goods are perfect substitutes that is both goods provide the same level of satisfaction…

Why indifference curve has negative slope?

An indifference curve always slopes downward from left to right, i.e. it has a negative slope. This is so because if a consumer wants to have more units of one commodity; he will have to reduce the number of units of the other commodity, due to his limited income.

Can an indifference curve be vertical?

Therefore, an indifference curve cannot slope upward from left to right. It is not an iso-utility curve. … Therefore, an indifference curve cannot be vertical either. Consequently, an indifference curve will be of negative slope, as shown in Figure 4 (D) where A and В combinations give equal satisfaction to the consumer.

Why higher IC gives more satisfaction?

A higher IC would imply a higher basket of good available for consumption by the consumers. Thus, a consumer will always prefer the highest attainable IC which gives them more satisfaction according to the budget constraint. Thus, the higher the IC in the IC map, more will be the level of consumer satisfaction.

Why higher IC represent higher level of satisfaction?

Answers. The higher indifference curve shows higher level of satisfaction as it provides higher quantities of the commodities which a consumer wishes to consume. Two indifference curves can never intersect each other as one specific bundle of commodity can never lie on two curves.

What does a higher indifference curve mean?

Higher indifference curve denotes a higher level of satisfaction. Higher indifference curve represents large bundle of goods, which means more utility because of monotonic preference.

Why should MRS decline?

Well MRS decline continuously in IC curve because of law of diminishing marginal utility. Means when the consumer consumes more and more of good 1 then his marginal utility from another good keeps on declining and he is willing to give up less and less of good 2 for each good 1. Thats why MRS decline in IC curve.

What is called point of satiety?

In economics, the point of satiety is defined as the point when the marginal utility of any activity is zero. From this point on, the marginal utility actually turns negative. Expressed differently, the point of satiety reflects that point when the total utility has been maximized.

Why is indifference curve convert to origin?

The indifference curves are convex to the origin because of the diminishing marginal rate of substitution.