Indifference curves

Indifferent curve is a curve showing the different combinations of two goods that provide the same satisfaction or total utility to a consumer.

Properties of Indifference Curves:

1. Every bundle is on some indifference curve;

2. Two indifference curves never cross;

3. Indifference curve slopes downward;

4. A bundle that has more of all goods is on a higher indifference curve.

A different level of satisfaction or total utility can be shown in indifference map -a selection of indifference curves.

One more characteristic of indifference curves is marginal rate of substitution (MRS_xy).MRS_xy is the rate at which a consumer is willing to substitute one good for another good without a change in total utility. The MRS equals the slope of an indifference curve at any point on the curve. It shows how much more of a good would a consumer require to compensate them for loss of a unit of another good. MRS measures willingness to make this substitution:

MRS_xy= -ΔY/ΔX

On the graph we can see the way of MRS calculating.

The rate of MRS and therefore the form of indifferent curve depends on the relationships between examined goods.

For example, MRS for perfect substitutes is constant and hence the indifference curve looks like straight line (Picture (a)). And if goods are perfect complements MRS for them is zero, the indifference curves look like right angles(Picture (b)).

Дата добавления: 2014-01-11