INDIFFERENCE CURVES

 Indifference Curves

What are Indifference Curves? The ordinal analysis of demand (here we will discuss the one given by Hicks and Allen) is based on indifference curves. An indifference curve is a curve which represents all those combinations of two goods which give same satisfaction to the consumer. Since all the combinations on an indifference curve give equal satisfaction to the consumer, the consumer is indifferent among them. In other words, since all the combinations provide the same level of satisfaction the consumer prefers them equally and does not mind which combination he gets.

If a consumer equally prefers two product bundles, then the consumer is indifferent between the two bundles. An Indifference curve is also called iso- utility curve or equal utility curve.

To understand indifference curves, let us consider the example of a consumer who has one unit of food and 12 units of clothing. Now, we ask the consumer how many units of clothing he is prepared to give up to get an additional unit of food, so that his level of satisfaction does not change. Suppose the consumer says that he is ready to give up 6 units of clothing to get an additional unit of food. We will have then two combinations of food and clothing giving equal satisfaction to the consumer: Combination A which has 1 unit of food and 12 units of clothing, and combination B which has 2 units of food and 6 units of clothing. Similarly, by asking the consumer further how much of clothing he will be prepared to forgo for successive increments in his stock of food so that his level of satisfaction remains unaltered, we get various combinations as given below:
Table 8 : Indifference Schedule

Combination	Food	Clothing	MRS
A	1	12
B	2	6	6
C	3	4	2
D	4	3	1

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GST Student friendly Book most relevant/Useful for CA Intermediate/IPCC, CS executive , CWA Intermediate and CA final. ALSO useful for B.Com / M.Com / MBA/ BBA/UPSC/ SSC and Various Govt Exams.!! This book is approved by Ministry of HRD Govt.of India as Students friendly book. Author Name- CA Harshita Raichandani and CA Dhananjay Ojha Book […]