Indifference Curve Analysis

# Indifference Curve Analysis Assignment Help

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# Indifference Curve Analysis

Indifference curve Analysis or the ordinal utility theory is an alternative technique to the cardinal utility, theory to explain the basis of demand theory. Ordinal utility means that utility cannot be quantitatively measured but can be expressed as more or less, higher or lower on a scale of preference. The concept of indifference curve involves choosing bundles of two goods that offer equal satisfaction to a consumer and drawing a curve by joining those bundles of equal preference. In the process of rearranging bundles of two goods X and Y that give equal satisfaction, a consumer has to sacrifice some quantity of one goods (say Y) to get a unit of the other goods (say X). This rate at which Y is given up for X and yet remains on same satisfaction level is called the marginal rate of substitution. The marginal rate of substitution. The marginal rate of substitution diminishes as consumer successively adds to stock of X by given up Y. the means successively less and less of Y is given up for X by giving up Y. given up for each successive additional unit of X. the marginal rate of substitution is measured by the slope of the indifference curve. A set of indifference curves that give successively higher and satisfaction to a consumer is called indifference map.

## Properties of Indifference Curves

Indifference curves have the following properties:

• Indifference curves always slope downwards.
• Indifference curves are convex to the origin.
• Two indifference curves drawn on the same axis cannot intersect.

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