The negative slope of the indifference curve reflects the assumption of the monotonicity of consumer’s preferences, which generates monotonically increasing utility functions, and the assumption of non-satiation (marginal utility for all goods is always positive); an upward sloping indifference curve would imply that a …

What are the assumptions of IC approach?

(1) The consumer acts rationally so as to maximise satisfaction. (3) The consumer possesses complete information about the prices of the goods in the market. (4) The prices of the two goods are given. (5) The consumer’s tastes, habits and income remain the same throughout the analysis.

What is indifference curve state its assumptions and properties?

“It is the locus of points representing pairs of quantities between which the individual is indifferent, so it is termed an indifference curve.” It is, in fact, an iso-utility curve showing equal satisfaction at all its points. A single indifference curve concerns only one level of satisfaction.

What does the MRS tell us?

What Is the Marginal Rate of Substitution (MRS)? In economics, the marginal rate of substitution (MRS) is the amount of a good that a consumer is willing to consume in relation to another good, as long as the new good is equally satisfying. MRS is used in indifference theory to analyze consumer behavior.

What will be the shape of indifference curve when two goods are perfect substitutes?

Indifference curves are linear if the individual regards the two goods as perfect substitutes. They are L-shaped if the individual regards the two goods as perfect complements.

What are the four properties of indifference curves?

The four properties of indifference curves are: (1) indifference curves can never cross, (2) the farther out an indifference curve lies, the higher the utility it indicates, (3) indifference curves always slope downwards, and (4) indifference curves are convex.

Which is the best definition of the indifference curve?

What is Indifference Curve? Indifference curve can be defined as the locus of points each representing a different combination of two good, which yield the same level of utility and satisfaction to a consumer. 1 What is Indifference Curve?

How is indifference curve related to utility ordinally?

The indifference curve analysis measures utility ordinally. It explains consumer behaviour in terms of his preferences or rankings for different combinations of two goods, say X and Y. An indifferent curve is drawn from the indifference schedule of the consumer.

Can a indifference curve be concave to the origin?

But an indifference curve cannot be concave to the origin. If we take a straight line indifference curve at an angle of 45° with either axis, the marginal rate of substitution between the two goods will be constant, as in Panel (B) where ab of Y= be of X and cd of Y= de of X. Thus an indifference curve cannot be a straight line.

How are preference and indifference related in economics?

(11) Both preference and indifference are transitive. It means that if combination A is preferable to В, and В to C, then A is preferable to C. Similarly, if the consumer is indifferent between combinations A and B, and В and C, then he is indifferent between A and C.