Properties of indifference curve, Macroeconomics

Assignment Help:

Properties of indifference curve: 

Property I: Higher indifference curve gives higher utility.  

 

351_Properties of indifference curve.png

Explanation: Since all goods are non-satiated, larger consumption of any good leads to larger utility. Thus, a commodity bundle, which consists of larger quantity of at least one good and no less consumption of any other goods, gives larger utility compared to any other commodity bundle. Consequently, higher indifference curve represents higher consumption of at least one commodity and no less consumption of any other commodity.  

Property II: Indifference curves can't intersect with each other.  

2433_Properties of indifference curve1.png

 Explanation: Suppose two indifference curves intersect each other. By definition, along the indifference curve, utility is constant. So, consumer is indifferent between points 'A' and 'C' that lie on the same indifference curve. Similarly, consumer is indifferent between points 'B' and 'C', as they also lie on the same indifference curve. So, AIC and BIC, where 'I' denotes indifference. Now, from transitivity we have AIB i.e., point 'A' and point 'B' give the same utility to the consumer. But for given x2, x1 is larger in point 'A' compared to point 'B'. So, by the assumption of non-satiation, we have point 'A' that gives lager utility to consumer as compared to point 'B'. This contradicts the fact that point 'A' and 'B' gives the same level of utility to the consumer (as we have proved above). Therefore, when all goods are non-satiated and transitivity holds, indifference curves can't intersect.  


Related Discussions:- Properties of indifference curve

Find the market equilibrium value, Frovea's currency is called the fromark,...

Frovea's currency is called the fromark, and Olympia's currency is called the olymark. In the market in which fromarks and olymarks are traded for each other, the supply of and dem

Assumptions of the AS-AD model, Q. Assumptions of the AS-AD model? The ...

Q. Assumptions of the AS-AD model? The most significant change we make going from IS-LM model to AS-AD model is to allow P to be endogenous. As P was constant in IS-LM model, w

Market structures, illustrate and discuss the market structures competitive...

illustrate and discuss the market structures competitiveand non competitive for price determination

Equilibrium analysis, A vital question is whether the equilibrium we have i...

A vital question is whether the equilibrium we have identified in labor market (with a high unemployment rate) can remain in long run. Will there not be adjustments which will take

Iterated elimination of dominated strategies, 1. Consider the following gam...

1. Consider the following game: a) Does either player have a dominant strategy? b) Does either player have a (pure) prudent strategy? c) Does the game have a saddlepo

When patulin molds can occur, Occurrence: It is found in a range of foods b...

Occurrence: It is found in a range of foods based on fruits. Presence of patulin in fruit juice is a indication that the juice was extracted from poor quality fruit which is undesi

Unemployment rate, Unemployment rate (LUNEMP): A key variable to assess...

Unemployment rate (LUNEMP): A key variable to assess the performance of any economy when an economy is growing, the unemployment rate will fall as job creation increases and in

Describe about price level and time, Q. Describe about Price level and time...

Q. Describe about Price level and time? We are hardly interested in the value of price level at a certain point in time. What we are interested in is percentage change in the p

Increasing opportunity cost, Using the PPC show what is meant by the law of...

Using the PPC show what is meant by the law of increasing opportunity cost and explain (state) why that law exists. Why is that law important when deciding whether or not to watch

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