Properties of indifference curve, Macroeconomics

Properties of indifference curve: 

Property I: Higher indifference curve gives higher utility.  

 

351_Properties of indifference curve.png

Explanation: Since all goods are non-satiated, larger consumption of any good leads to larger utility. Thus, a commodity bundle, which consists of larger quantity of at least one good and no less consumption of any other goods, gives larger utility compared to any other commodity bundle. Consequently, higher indifference curve represents higher consumption of at least one commodity and no less consumption of any other commodity.  

Property II: Indifference curves can't intersect with each other.  

2433_Properties of indifference curve1.png

 Explanation: Suppose two indifference curves intersect each other. By definition, along the indifference curve, utility is constant. So, consumer is indifferent between points 'A' and 'C' that lie on the same indifference curve. Similarly, consumer is indifferent between points 'B' and 'C', as they also lie on the same indifference curve. So, AIC and BIC, where 'I' denotes indifference. Now, from transitivity we have AIB i.e., point 'A' and point 'B' give the same utility to the consumer. But for given x2, x1 is larger in point 'A' compared to point 'B'. So, by the assumption of non-satiation, we have point 'A' that gives lager utility to consumer as compared to point 'B'. This contradicts the fact that point 'A' and 'B' gives the same level of utility to the consumer (as we have proved above). Therefore, when all goods are non-satiated and transitivity holds, indifference curves can't intersect.  

Posted Date: 10/26/2012 2:48:22 AM | Location : United States







Related Discussions:- Properties of indifference curve, Assignment Help, Ask Question on Properties of indifference curve, Get Answer, Expert's Help, Properties of indifference curve Discussions

Write discussion on Properties of indifference curve
Your posts are moderated
Related Questions

definition, argument to protectionism and argument against protectionisms

Suppose that the marginal utility of good A is 4 times the marginal utility of good B, but the price of good A is only 2 times the price of good B. Is this point consumer equilibri

Cornell University conducted a study of wage differentials between men and women reported that one reason that men's wages are higher is that men tend to have more years of work ex

1a. Show on the market for milk the effect of the introduction of BGH (bovine growth hormone). 1b. Show on the market for cheese the impact of what happened in the milk market.

Reaganomics Supply-side economics or New Classical Economics has gained distinct prominence in the early 1980s with the election in the U.S.A of a conservative government unde

full overview as-ad model

State the market for overnight loans Overnight interest rates are rates for loans over a single night - these are the shortest of all interest rates. During the day, banks norm

In order to observe the correlations between each variable, the most effective method to use is Vector Autoregression (VAR). VAR estimation uses a system of simultaneous equations

Q. What do you mean by Price index? Because we are only interested in percentage change of the price level and not particular value, we can divide every price level by a given