Properties of indifference curve, Macroeconomics

Assignment Help:

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.  


Related Discussions:- Properties of indifference curve

A good is classified as inferior, a good is classified as inferior if a....

a good is classified as inferior if a. consumers buy less when the price rises b. consumers buy less when the income rises c. consumers buy less when the price falls d.

GDP, Calculate the marginal cost and marginal analysis for the following ta...

Calculate the marginal cost and marginal analysis for the following table. Calculate the answers and insert them into the shaded cells. Units Produces Cost per Unit Total Cost Ma

Important points about the classic model, Q. Important points about the cla...

Q. Important points about the classic model? The most important points about the classic model are as following:  Monetary and fiscal policy can't affect the GDP or unem

Spss , (I am providing them below) of Module 5 before beginning this assign...

(I am providing them below) of Module 5 before beginning this assignment.  You will have the opportunity to work through much of the assignment during the group activity for week 1

Should the fiscal policy be active or passive?, In the view of above compli...

In the view of above complications, there is a long-standing debate on whether the fiscal policy should be active or passive in nature. Note that in the Keynesian context; even a p

Information technology department at wpu, A study by the Information Techno...

A study by the Information Technology department at WPU revealed company employees receive an average of four e-mails per hour. Assume the arrival of these e-mails is approximated

Elucidate the rise in gdp, How much does GDP rise in each of the following ...

How much does GDP rise in each of the following scenarios: 1. During a recession, the government raises unemploymemnt benefits by $100 million. 2. A new US airline purchases

What are the important tools to consider monetary policy, What are the impo...

What are the important tools to consider Monetary Policy? Important tools to consider Monetary Policy: a. What the money demand curve is b. Why the liquidity preference m

Lag length criteria, In order to estimate aVAR, alag length must be used in...

In order to estimate aVAR, alag length must be used in the estimation. There are many different criteria which can be used to signal the ideal lag length to use.Asteriou & Hall (20

Explain production as an income generating activity, Explain production as ...

Explain production as an income generating activity. What are the principal difference among government purchases of goods & service and transfer payments? Why are in

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd