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

Lag length criteria, Lag Length criteria VAR Lag Order S...

Lag Length criteria VAR Lag Order Selection Criteria         Endogenous variables: OIL EXCH R RPI LUNEMP GDP

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

Is-lm approach, with help of is-lm technique explain the process of integra...

with help of is-lm technique explain the process of integration of money market and goods market by way of keynesian approach

Index number, definition and charactoristics of index numbers.problems whil...

definition and charactoristics of index numbers.problems while constructing index numbers

Calculate the number average molecular weight, You have two bags of polymer...

You have two bags of polymer. Bag A has 10 kgs of polymer with weight average molecular weight of 336.6 kg and Bag B has 20kg of polymer with weight average molecular weight 392.7k

Trade, What is the difference between heckscher_olin theory and comparative...

What is the difference between heckscher_olin theory and comparative theory

Determination of national income, Explain determination of national income ...

Explain determination of national income using aggregate demand-aggregate supply and saving-investment methods for a three sector economy.

Trading, America can produce 100 shirts or 20 computers and China can produ...

America can produce 100 shirts or 20 computers and China can produce 100 shirts or 10 computers. With trade, who exports shirts? Which country benefits from the trade?

Write the mass balance equation, Environmental engineers and scientists are...

Environmental engineers and scientists are becoming concerned about pharmaceuticals in the environment. An antibiotic is discharged into a small lake at an influent concentration o

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