Professional Documents
Culture Documents
Indifference Curves
Indifference Curves
DEFINITION
Indifference curve, in economics, is a graph
showing various combinations of two things
(usually consumer goods) that yield equal
satisfaction or utility to an individual.
CONSUMER EQUILIBRIUM
It refers to a situation in which a consumer with
a given price and income, purchases such a
combination of goods and services as gives him
maximum satisfaction and he is not willing to
make any change in it.
Contd…
It can be affected by:-
Income effect
Substitution effect
Price effect
INCOME EFFECT
Changes in consumer purchases of goods as a
result of change in money income.
SUBSTITUTION EFFECT
Changes in the quantity of goods purchased due
to changes in the relative prices alone, while
real income remains constant.
PRICE EFFECT
It refers to the total change in quantity
demanded resulting from a change in price.