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

What is use of long-run average total cost curve in output, What is the use...

What is the use of long-run average total cost curve in the producing output? The long-run average total cost curve demonstrates the relationship in between output and average t

Statutory compliance mandates, To the extent that statutory compliance mand...

To the extent that statutory compliance mandates conditions that formerly were only available to workers who had union negotiating power to win such conditions at the bargaining ta

Describe the corresponding equilibrium strategies, Only two identical firms...

Only two identical firms i = A;B, each with marginal cost MCi = 40 and no fixed cost, operate in a market with demand: Q     p 1    160 2    120 3     90 4     70

Pros and cons of commercial transactions, Examine the pros and cons of comm...

Examine the pros and cons of commercial transactions in blood from the egoistic, the utilitarian, and the Kantian perspectives

Money banking and finance, The analysis of the speculative demand for money...

The analysis of the speculative demand for money reveals the importance of the level of wealth. Explain this assertion in detail

What do you mean by exchange rate, Q. What do you mean by Exchange rate? ...

Q. What do you mean by Exchange rate? Exchange rate is defined as the price of one unit of currency in terms of another currency. If one euro costs 1.5 USD then 1 USD costs 1/1

Calculate the average propensity, Question: Table below shows the recen...

Question: Table below shows the recent trends in terms of consumption. (a) (i) Explain what is meant by the term ‘marginal propensity to consume' (MPC) and the ‘averag

State the marginal productivity theory, Q. State the Marginal Productivity ...

Q. State the Marginal Productivity Theory. What are its features and assumption? Marginal Productivity Theory of distribution states that in a capitalist economy the demand for

Upper bound of the confidence interval, A stock investor would like to have...

A stock investor would like to have an idea concerning the average return of stocks that are traded on a certain exchange. In a sample of 99 stocks, the average return was 9 percen

Demand in the local hardware industry, The elasticity of demand in the loca...

The elasticity of demand in the local hardware industry is -2, while in the video market it is. Which industry has a higher markup over marginal cost (as a percentage of price)?

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