INDIFFERENCE CURVE

Indifference curves is a curve connecting the points of combinations of consumption (or

purchases) of goods that result in the same level of satisfaction. Indifference curve shows all
combinations of consumer choices that provide the same level of satisfaction or utility for a
person or consumer.

Indifference Curve Characteristics:

−Has a negative slope (consumers will reduce the consumption of one good if he increases
the number of other goods consumed).
−Convex towards the point of origin, indicating that there is a difference in the proportion of
the amount that must be sacrificed to change the combination of the amount of each item
consumed (marginal rate of substitution).
−Not intersecting, it is impossible to obtain the same satisfaction on a different indifference
curve.

Some assumptions that must exist in the ordinal approach in the formation of
indifference curves that must be obeyed, namely:
−Rationality, consumers are assumed to be rational, meaning that consumers maximize
utility with income at certain market prices and consumers are considered to have perfect
knowledge of market information.
−Utility is ordinal in nature, meaning that it is enough for the consumer to provide a ranking
or rating of whichever combination he likes, so that the consumer does not need to provide a
unit of satisfaction for the goods consumed.
−Adhering to the law of diminishing marginal rate of substitution means that if consumers
increase the consumption of one good it will cause a decrease in the consumption of other
goods and can be described by an indifference curve.
−Total Utility obtained by consumers depends on the amount of goods consumed.
−It is consistent and transivity of choice means that if A>B>C then item A is preferred over B
and item B is preferred over C, the conclusion is that A>B>C then A>C.

Indifference Curve Shape:

Indifference Curve Properties
1. Higher indifference curves are preferred over lower ones
−Each consumer usually prefers to be able to consume goods in greater quantities.
−A higher indifference curve represents the availability of more goods than the curve
below it.

2. The indifference curve curves downward

−Consumers are willing to exchange an item if they get more of another item to get
the same satisfaction.
−If the quantity of one good decreases, the quantity of another good must increase.

3. Indifference curves do not intersect (transivity principle)

−Points A and B provide the same satisfaction for consumers.
−Points B and C provide the same satisfaction for consumers.
−This means that points A and C will provide the same satisfaction for consumers.
−Even though point C contains more goods than point A.
4. More is better, a lot is preferable to a little

Indifference curves that are on the right side are preferred, because more is better