Indifference curves, Microeconomics

Assignment Help:

Indifference Curves: Every consumption-leisure point, (l; c), in the diagram is associated with a unique level of utility. The line II represents the individuals indifference curve. It gives the combinations of consumption, c, and leisure, l, that generate some particular level of utility, u. Indifference curves have three properties:

(1) Indifference curves slope downwards. Why? Again, along an indifference curve utility is fixed at u. Therefore, to give the person more leisure, l, you must take away some of his consumption, c, at least if you want to keep him at the specified level of utility, u. The slope of the indifference curve gives the .marginal rate of substitution between leisure and consumption. In other words, it speci.es the maximal amount of consumption that the person is willing to forgo in order to gain an extra unit of leisure. Anymore consumption would reduce the persons utility and any less would raise it.

(2) The slope of an indifference curve decreases (in absolute value) as you move from left to right along the horizontal axis. The more leisure a person enjoys the less consumption he is willing to give up for yet an extra unit. This reflects diminishing marginal utility in leisure and consumption. Each marginal unit of leisure generates less and less in extra utility. Likewise, each marginal unit of consumption that is taken away results in increasing losses in utility. Note that higher (lower) levels of utility are associated with indifference curves that lie outwards (inwards) from II.

(3) Indifference curves cannot cross one another. If they could then every point of intersection would be linked with two levels of utility.


Related Discussions:- Indifference curves

OLIGOPLOLY MODELS, GIVE EXAMPLES OF EACH OLIGOPOLY MODELS FROM REAL LIFE

GIVE EXAMPLES OF EACH OLIGOPOLY MODELS FROM REAL LIFE

Intermediate Microeconomics: Producers and Market S, Model in economics is...

Model in economics is the permanent income hypothesis, which basically states that a household''s expenditures will not react to a change in income unless that change in income is

Short-run economic decisions, Weston Industrial Manufacturing Products ("WI...

Weston Industrial Manufacturing Products ("WIMP") has the capability to produce a variety of industrial products, including a number of types of widgets. In the past, WIMP has manu

Production Possibility Curve, Explain in detail the concept of PPC with sui...

Explain in detail the concept of PPC with suitable eg.

Price and inflation, If the price of that cup of teh-tarik has increased in...

If the price of that cup of teh-tarik has increased in such an amount,economists may not necessarily conclude that the country is going throungh inflation.why is that so?

Determine the consumer surplus and the average price per cup, Suppose the d...

Suppose the demand curve for a consumer for coffee is: Q = 6 – 2P, where Q represents the number of cups per day and P is the price of coffee per cup.  Question: Sppose the co

Price crimination, (i) Define the three types of price discrimination, clea...

(i) Define the three types of price discrimination, clearly stating the different information requires of each type of discrimination. (ii) Find a real-world example of second-degr

What do you mean by consumption set, What do you mean by Consumption Set? ...

What do you mean by Consumption Set? Consumption Set: We notice a consumer faced along with possible consumption bundles within consumption set X. We generally assume that X

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd