Indifference curve definition what is meant by the term indifference curve. Aggregate demand and supply in macro economic problems. Indifference curve adopted the concept of ordinal utility instead of cardinal utility. On an indifference map, higher indifference curve represents a higher level of satisfaction than any lower indifference. Indifference curves can never intersect each other indifference curves can never intersect each other because each indifference curve represents a specific level of satisfaction. An alternative approach to understanding consumer choice learning objectives 1. Apr 17, 2020 chapter indifference curve chapter notes, micro economics, class 12 edurev notes is made by best teachers of commerce.
Economics online classes at takshila learning is an easy, convenient and simple way to understand the concepts of economics class 12. In other words, the indifference curve is the graphical representation of different combinations of goods generally two, for which the consumers are indifferent, in terms of the overall satisfaction and the utility. Thus the basis of indifference curve approach is the preference indifference hypothesis. When a consumer consumes various goods and services, then there are some combinations, which give him exactly the same total satisfaction. Explain the notion of the marginal rate of substitution and how it relates to. Examples of indifference curves kent state university. Notes on ncert economics class 12 are easy to understand and to gain the conceptual knowledge in a different but simple manner. Download as ppt, pdf, txt or read online from scribd. Lecture notes economics indifference curve analysis. Indifference curve approach free notes for economics class 12. Students should solve the cbse issued sample papers to understand the pattern of the question paper which will come in class 12 board exams this. Before we proceed to determine the consumers equilibrium through this approach, let us understand some useful concepts related to indifference curve analysis.
This implies that the indifference curves should designate a reference point at the current. Indifference curves have a negative slope, and in special cases zero slope. An indifference curve is a graph showing combination of two goods that give the consumer equal satisfaction and utility. Below is a topic of economics consumer equilibrium marginal utility and indifference curve analysis for class 12 based on the pattern of cbse class 12 economics. Pdf ml jhingan microeconomics pdf download for free.
Part one discusses the tools and methods of economic analysis, the nature and central problems of an economy, and the price system. The importance of indifference curve analysis in economics are as follows. Two indifference curve never cut each other our hypothesis is that consumer is at same level of satisfaction that is ic, now suppose two indifference curve intersect each other. Download cbse class 12 economics indifference curve analysis in pdf, questions answers for economics, cbse class 12 economics indifference curve analysis. Since indifference curves are downward sloping, they have a negative slope. Consumers equilibrium notes microeconomics cbse class. A popular alternative to the marginal utility analysis of demand is the indifference curve analysis. As we see that point a is at higher indifference curve ic2 which shown he get higher satisfaction. So far in the text, we have described the level of utility that a person receives in.
Applied microeconomics consumption, production and markets this is a microeconomic theory book designed for upperdivision undergraduate students in economics and agricultural economics. Why two indifference curves cannot intersect each other. Pdf the thesis of this paper is that when the indifference curve is concave to the origin, the. Similarly all the combinations lying on indifference curve ii provide the same satisfaction but the level of satisfaction on indifference curve ii will be greater than the level of satisfaction on indifference curve i likewise, all higher indifference curves, iii, iv and v represent progressively higher and higher levels satisfaction. Developed by the irishborn british economist francis y. Part two analyses the theory of consumer behaviour both in terms of the utility analysis and the indifference curve approach, along with the concept of elasticity of demand.
Indifference curve analysis is not an easy analysis. Indifference curve analysis microeconomics lumen learning. This section presents an alternative approach to describing personal preferences, called indifference curve analysis, which avoids the need for using numbers to measure utility. We start analysing indifference curves as a way of representing utility, then we explain what the marginal rate of substitution is and, lastly, what different kinds of indifference curves there. Because we know the definition of mrs, keeping the negative sign is unnecessary. The indifference curve analysis measures utility ordinally. Examples of indifference curves left and right shoes \ right shoes left shoes 1 5 7 2 4 3 8 6 i1 i2 i3 examples of indifference curves third example indifference curves between bourbon and temperance lectures for w. Indifference curves and marginal rate of substitution video khan. Conditions of consumers equilibrium using marginal utility analysis and indifference curve analysis of consumers equilibrium. According to the indifference curve approach, it is not possible for the consumer to.
Theory of demand supply, price elasticity, indifference curves, welfare analysis 1. Similarly all the combinations lying on indifference curve ii provide the same satisfaction but the level of satisfaction on indifference curve ii will be greater than the level of satisfaction on indifference curve i likewise, all higher indifference curves, iii, iv and v represent progressively higher and. Consumer equilibrium refers to a situation, in which a consumer derives maximum satisfaction, with no intention to change it and subject to given prices and his given income. Since more is better, an indifference curve cannot have a positive slope. This may well explain the oft found stickiness in adjustment to changes in wages, prices. In economics, an indifference curve connects points on a graph representing different quantities of two goods, points between which a consumer is indifferent. Cbse issues sample papers every year for students for class 12 board exams. Each point on an indifference curve indicates that a consumer is indifferent between the two and all points give him the same utility. An indifference curve defines the substitution between goods x and y that is acceptable in the mind of the consumer. What is the importance of the indifference curve analysis. This reveals a potential source of confusion for students.
We can just use the absolute value of the slope to simplify the analysis. This document is highly rated by commerce students and has been viewed 33202 times. In this chapter, we begin the formal study of microeconomics by examining the eco. An indifference curve represents a series of combinations between two different economic goods, between which an individual. An indifference curve is a convex shaped curve depicting the graphical representation of the different combinations deriving the same level of satisfaction to the consumer by considering two commodities. This article presents the proper analysis of indifference curve systems once some of the simplifying assumptions used to teach beginning students are relaxed.
Examples of indifference curves third example indifference curves between bourbon and. Introduction to indifference curves and budget lines economics. The economics profession, as articulated through the megaphone of intermediate micro economics. The difficulty with a rejection of transitivity which underlies indifference curve analysis is a reductio ad absurdum, based upon the money pump. Indiference curve analysis,ppt microeconomics economic. Indifference analysis economics business economics. It cannot be used to study the group behaviour of consumers and their equilibrium showing the different levels of satisfaction with different combinations of two goods. An alternative approach to understanding consumer choice, section 7.
Most generally and assuming youre referring to a utility map, it helps us understand the combinations of goods that lead to various levels of utility and most importantly helps us understand which combination maximizes utility subject to a bud. Economists use the vocabulary of maximizing utility to describe consumer choice. This approach assigns an order to consumer preferences rather than measure them in terms of money. Indifference curve, in economics, graph showing various combinations of two things usually consumer goods that yield equal satisfaction or utility to an individual. Theory of demand supply, price elasticity, indifference. We begin the study of the economic behavior of the consumer by examining tastes. Indifference curve analysis is based on individual behaviour and equilibrium. The indifference curve is a graph showing the different combinations of two goods that report the same satisfaction to a person, and are preferred to other combinations. If two indifference curves intersect each other, then at the point of intersection, the consumer is. Lecture notes economics indifference curve analysis studocu. The indifference curve shows the different combinations of two goods that give equal satisfaction and utility to the consumers. Description indifference curves depict sensitivity of an output to two inputs.
The economics profession, as articulated through the. Sensitivity analysis excel model with indifference curves. Utility functions and indifference curves questions 1 for the part of the function shown in the graph, are preferences complete. That is, any combinations of two products indicated by the curve will provide the consumer with equal levels of utility, and the consumer has no preference for one combination or bundle of goods over a different combination on the same curve. The concept of indifference curve analysis was first propounded by british economist francis ysidro edgeworth and was put into use by italian economist vilfredo pareto during the early 20 th century. Indiference curve analysis,ppt free download as powerpoint presentation. Notes for cbse class 11th chapter 2 consumers equilibrium. Each curve corresponds to a fixed output amount and shows at which combination of the two inputs this output amount remains the same or indifferent, hence the name of the chart type. It implies that the consumer is capable of simply comparing different levels of satisfaction. In general, there is an indifference curve through any point in xy space. The basic idea behind ordinal utility approach is that a consumer keeps number of pairs of two commodities in his mind which give him equal level of. Consumer equilibrium marginal utility and indifference. Law of diminishing marginal utility dmu, assumptions of law of dmu, relationship between totally utility and marginal utility. The concept of indifference curve analysis was first.
This is based on consumer preference and believes that we cannot quantitatively measure human satisfaction in monetary terms. The approach of the indifference curve is based on ordinal utility in. When one arrives at two options that are indifferent to the individual, these two points that represent them are on the same indifference curve. An indifferent curve is drawn from the indifference schedule. Explain utility maximization using the concepts of indifference curves and budget lines. Indifference curves demand analysis microeconomics. Consumers tastes can be related to utility concepts or indifference curves. First, the diminishing mrs assumption is relaxed to allow the existence of concave4 indifference curves. Indifference curves and marginal rate of substitution. In microeconomics, indifference curve is an important tool of analysis in the study of consumer behavior. According to it when a consumer is presented with a number of various combinations of goods, he can order or rank them in. Consumer equilibrium marginal utility and indifference curve analysis.
It explains consumer behaviour in terms of his preferences or rankings for different combinations of two goods, say x and y. Browse more topics under theory of consumer behavior. Cbse class 12 economics indifference curve analysis. Indifference curves constructing an indifference curve. The point of maximum satisfaction is achieved by studying indifference map and budget line together. Edgeworth, it is widely used as an analytical tool in the study of consumer. However, it was brought into extensive use by economists j. An alternative approach to understanding consumer choice learning objectives. Understanding consumers equilibrium by indifference curve analysis. So far in the text, we have described the level of utility that a person receives in numerical terms. Likewise, if he were to give up any less, he would be on a higher indifference curve. Understanding consumers equilibrium by indifference curve.196 929 1170 37 172 238 730 865 565 1252 1133 1040 1194 1373 454 469 1499 1418 619 129 1070 654 645 308 967 832 354 15 1195 1147 18 180 545