Indifference curves are drawn on the assumption that a consumer makes rational choices between different bundles of goods can decide which bundle gives him more or less satisfaction than any other bundle. A bundle refers to a collection of goods that contains a given quantity of each good. Consumer’s aim being maximization of satisfaction, he will prefer a bundle that gives him higher satisfaction than the other.
If we have two goods X and Y, then other things being equal, the consumer would prefer any bundle that has more of both X and Y or at least more of either X or Y than the other bundle. In other words, a consumer always prefers more of any product to less of the same product. All those bundles that have more of one or bath product than a given bundles superior to B and those which have less of one or both goods are inferior to bundles B. thus, all bundles of goods X and Y that lie on the lines AB and BC and in the space ABC and above are superior bundles and are thus preferable to bundle B. conversely, all the bundles that lie in space EBF are inferior and preferable since they have lesser amount of one or both goods. These inferior bundles are rejected because they give less satisfaction than bundle B, while all bundles above B in space ABC are preferable.
But besides the bundles lying above or below B, there are many other bundles lying in space ABEY and FBCX. The bundles in space ABEY show combinations that have more of one good (Y) and less of other (X) and may be one of these bundles, say K is as satisfying as bundle B. similarly, bundle L in space FBCX contains more of X but less of Y than B and may again be just equally preferable. Now, if we join points KBL we get the indifference curve IC0 . The indifference curve is thus the locus of points that reject all those bundles of two goods among which a consumer is indifferent. The entire space above indifference curve IC0 represents bundles of X and Y which are superior to bundle B. and the space below the IC0 shows bundles which are inferior and thus less preferable to B. only bundles shown by the points on the curve show combination of X and Y which yield same satisfaction to the consumer and thus the consumer is indifferent between the combinations indicated by any two points on the indifferent curve.
An indifference curve thus shows various combinations of two goods which yield same satisfaction to a consumer. Therefore a consumer is said to be indifferent between the combinations indicated by any two points on the same indifferent curve.SUBMIT ASSIGNMENT NOW!