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
What are the important aspects in tracking the macro-economy? Important aspects in tracking the macro-economy: a. How economists utilizes aggregate measures to track the pre

After an oil price shock was impacted upon the other five variables in the model, many interesting results were found. I have already demonstrated that oil Granger causes i

This paper empirically analyses the effect of oil price shocks on key macroeconomic indicators in the United Kingdom.The aim of the paper is to establish a relationship between oil

Q. Define do you mean by GDP growth? By (nominal) GDP-growth we mean the percentage change in (nominal) GDP over a specific period of time. Real GDP growth is defined as percen

On the day his son was born, a father decided to establish a fund for his son's college education. The father wants the son to be able to withdraw $4000 from the fund on his 18th b

what is Y = C(Y,T) + G + I(r)

From Tables 3A to 3F in the Appendix the results from VAR/Block Exogeneity Granger Causality Test are that the oil price variable does Granger cause both Inflation and interest rat

What is Inherent Limitation?

How will each of the following bases for hospital reimbursement affect the number of admissions, the average length of stay, the volume of services per day, and the unit cost of se

what are the objectives of the determinants of investments