Indifference curves, Marketing Research

Assignment Help:

Indifference Curves: The Consumer Tastes

Suppose we ask the consumer what his preferences are for alternative bundles of two goods, say food and clothing. Certain combination of the two goods may be equally desirable to him. For example, he may be indifferent between a combination of 2 units of food and 6 units of clothing arid a combination of 4 unit of food and 3 unit of clothing. This generates a preference ranking for a wide range of possible market baskets or bundle of goods. Table 3.4 shows some possible bundles which are equally desirable to the consumer. Indifference curves are formed by a graphic presentation of these combinations. Fig 3.7 depicts a number of consumer indifference curves representing consumers' scale of preferences. An indifference curve shows all combinations of two goods among which the individual is indifferent since they yield equal satisfaction to the consumer.

Table 3.4: Indifference Schedule

Combination

Food(x)

Clothing(Y)

MRSYX=DY/DX

A

1

12

-

B

2

6

-6

C

3

4

-2

D

4

3

-1

 

In Fig. 3.7 indifference curve I2 shows that combination B (2 unit of food and n unit of clothing) and combination C (3 unit of food and 4 unit of clothing) are equally desirable, as they yield same satisfaction. On the other hand, points on indifference curve I3 yield a higher level of satisfaction and I4 a still higher level. Indifference curves give an ordinal (rank) measure of utility. That is, we know that I4 > I3 > I2 > I1 but not by how much.

1874_indifferencr curve.png

It is observed that, some consumers may value an extra unit of a particular good highly while others may not. The marginal rate of substitution (MRS) measures the relative importance attached by the consumer to the acquisition of additional unit of a good. The MRS is the rate at which one good can be substituted for another to maintain the same level of satisfaction. It measures the slope of two combinations between any two points. For this reason, indifference curves are negatively sloped. This identifies the trade off of one good for another which the consumer is willing to make independent of the prices of two goods, which indicates the trade off conditions required by the market. The rate at which consumers are willing to trade off one product for another can be altered by changing their tastes. Here advertising and other forms of promotion can be useful.

In our example, the amount of clothing that the individual would be willing to give up for an additional unit of food is the MRS of clothing for food (MRSyx) As a result, the indifference curve I2 is negatively sloped. It can further be observed from Table 3.4 that the consumer is willing to forego 6 units of clothing for an additional unit of food. Then he gives up 2 units of clothing for an additional unit of food and so on. Therefore the MRS between points A and B is 6 units, and 2 units between B and C. This means that the consumer is willing to forego less and less of the good being substituted (clothing in this example). This is due to the diminishing MRS.

The MRS diminishes because goods are not perfect substitutes the additional utility derived from an additional quantity of a good decreases fast in relation to me other commodity whose total quantity is being decreased. Thus, as the consumer moves down the indifference curve, the MRS decreases. The diminishing MRS gives convex shape to the indifference curve.

From the previous discussion we can say that the indifference curves:

  • are negatively sloped,
  • are convex to the origin,
  • do not intersect each other and

·        placed higher, represent a higher level of satisfaction.

If two indifference curves cross each other it would mean that two equal combinations of two goods yield two different levels of satisfaction. In other words, a larger and a lower level of satisfaction is given by an indifference curve. This is not possible as all points on an indifference curve yield same level of satisfaction. 


Related Discussions:- Indifference curves

Strike perils, Strike Perils : In marine insurance, strike perils mean eve...

Strike Perils : In marine insurance, strike perils mean events which lead to loss or damage to cargo caused by: i) Strikes, lock-out workmen or persons taking part in labour di

Example to have the consumer reflexively, Q. Example to have the consumer r...

Q. Example to have the consumer reflexively? A special issue in memory are consequently called 'scripts' or procedures we remember for doing things. Scripts involve a sequence

Model, model building is the essence of the operations research approach?

model building is the essence of the operations research approach?

Insurance claims, INSURANCE CLAIMS : When there is a loss, the insured i...

INSURANCE CLAIMS : When there is a loss, the insured is to proceed to claim the loss recovery from the insurer. The cardinal principle about insurance claims is that the insured

Describe the term - materials, Describe the term - Materials Materials...

Describe the term - Materials Materials department uses research to create suitable policies regarding. Where to buy? How much to buy? When to buy? At what pric

Marketing research, Marketing research: Meaning & definition for the r...

Marketing research: Meaning & definition for the research: research in the common parlance refers to the research for knowledge. One can also define research as a scientific

Groupon, consumer behaviour helped groupon

consumer behaviour helped groupon

Marketing principles, give examples of different product strategies used by...

give examples of different product strategies used by different similar companies to sustain competitive advantages and justify wether thestrategies have been successful

Marketing strategy, from domestic products to skin care product. what will ...

from domestic products to skin care product. what will be the marketing plan

Introduction-export finance, INTRODUCTION : You have learnt various provis...

INTRODUCTION : You have learnt various provisions of Exchange Regulations . Export financing is another important area of export business. Export finance refers to the credit f

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