Define indifference curve and its characteristics/properties with diagrams

Q. What is an indifference curve and what are its characteristics/properties? Use diagrams in your answer (Nov’03, Nov’04, Nov’07, Nov’09, and Nov’10).

An indifference curve: 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.

Description: Graphically, the indifference curve is drawn as a downward sloping convex to the origin. The graph shows a combination of two goods that the consumer consumes.

The above diagram shows the U indifference curve showing bundles of goods A and B. To the consumer, bundle A and B are the same as both of them give him the equal satisfaction. In other words, point A gives as much utility as point B to the individual. The consumer will be satisfied at any point along the curve assuming that other things are constant.

Characteristics/properties of an indifference curve:

Following are the indifference curve properties:

1. If two commodities are perfect substitute the indifference curve is a straight line.

2. When two commodities are not substitutable then the shape is represented by two vertical and horizontal lines.

3. In more typical cases, in which the two commodities can be substituted for each other but are not perfect substitutes, the indifference curve will be curved as

 

4. The more easily the two commodities can be substituted for each other the nearer will the curve approach straight line.

5. Indifference curves normally slope downward, the upward sloping portion of curve shown here s impossible. Basket A has more goods than basket B and therefore it could not be on the same indifference curve.  The indifference curves have normally negative slops – sloping downward.

6. The absolute value of the slope of an indifference curve at any point represents the ratio of the marginal utility of the good and on the horizontal axis to the marginal utility of the good on the vertical axis. The rate at which one good can be substituted for the other without gain or loss in satisfaction is called marginal rate of substitution.

7. Indifference curves are convex, that is, their slope decrease as one moves down and to the right along them. The implies that the ratio of the marginal utility of meat to the marginal utility of the ghee (cooking oil) also known as marginal ratio of substitution of meat for ghee (cooking oil) diminishes as one moves down and to the right along the curve.

8. Indifference curves can be drawn through the point that represents the basket of goods whatsoever.