Indifference curves, Microeconomics

Indifference Curves: Every consumption-leisure point, (l; c), in the diagram is associated with a unique level of utility. The line II represents the individuals indifference curve. It gives the combinations of consumption, c, and leisure, l, that generate some particular level of utility, u. Indifference curves have three properties:

(1) Indifference curves slope downwards. Why? Again, along an indifference curve utility is fixed at u. Therefore, to give the person more leisure, l, you must take away some of his consumption, c, at least if you want to keep him at the specified level of utility, u. The slope of the indifference curve gives the .marginal rate of substitution between leisure and consumption. In other words, it speci.es the maximal amount of consumption that the person is willing to forgo in order to gain an extra unit of leisure. Anymore consumption would reduce the persons utility and any less would raise it.

(2) The slope of an indifference curve decreases (in absolute value) as you move from left to right along the horizontal axis. The more leisure a person enjoys the less consumption he is willing to give up for yet an extra unit. This reflects diminishing marginal utility in leisure and consumption. Each marginal unit of leisure generates less and less in extra utility. Likewise, each marginal unit of consumption that is taken away results in increasing losses in utility. Note that higher (lower) levels of utility are associated with indifference curves that lie outwards (inwards) from II.

(3) Indifference curves cannot cross one another. If they could then every point of intersection would be linked with two levels of utility.

Posted Date: 3/25/2013 6:31:57 AM | Location : United States







Related Discussions:- Indifference curves, Assignment Help, Ask Question on Indifference curves, Get Answer, Expert's Help, Indifference curves Discussions

Write discussion on Indifference curves
Your posts are moderated
Related Questions
Perfect competition has the following characteristics: 1. Large number of firms - There are a large number of firms in the market. Due to this each firm produces a very small fr

Q. Strength of the multiplier in microeconomics? Multiplier: An initial stimulus to spending (in form of new consumer, business or government purchases) generally results in a

Price Elasticity of Demand is explained below: Price elasticity of demand/require is the percentage change in the quantity demanded with respect to the percentage change in the

types of demand

Explain Monetarist and Monetary policy Monetarist:    A group of economists who believe that alters in the money supply are the most effective instrument of government economi

What have been some justifications given for the historical exclusion of household production from the national accounts? Some reasons have included: a. households are not p

1. Implicit and explicit revenues minus implicit and explicit costs equals: A. accounting profit. B. economic profit. C. zero profit. D. implicit profit. 2. A business owner mak

Comparison with Our Needs: We can further test our performance by juxtaposing it with our requirements. Admittedly, it is very difficult to determine 'needed' rate of growth w

Poverty: A state of having inadequate income or other resources to support a household (or group of households) at a basic standard of living. Poverty can be measured in absoluterr

Question : (a) Explain why each of the following factors may influence the own price elasticity of demand for a commodity. (i) Consumer preferences, that is, whether c