Who introduced indifference curve theory on consumer Behaviour?
Who introduced indifference curve theory on consumer Behaviour?
History. The theory of indifference curves was developed by Francis Ysidro Edgeworth, who explained in his 1881 book the mathematics needed for their drawing; later on, Vilfredo Pareto was the first author to actually draw these curves, in his 1906 book.
What role does indifference curve play in consumer analysis?
Indifference curve is the graphical representation of bundles of goods which provide same utility. The slope of indifference curve is the marginal rate of substitution (MRS), which shows that to consume one more unit of good, there is opportunity cost of the foregone good.
What are the indifference curve approach?
The indifference curve method seeks to derive all rules and laws about consumer’s demand that are derivable from the cardinal utility analysis. For example, the prices of goods, the markets in which they are available the satisfaction to be obtained from them etc., are all known to the consumer.
What is indifference curve with examples?
An indifference curve shows all combinations of goods that provide an equal level of utility or satisfaction. For example, Figure 1 presents three indifference curves that represent Lilly’s preferences for the tradeoffs that she faces in her two main relaxation activities: eating doughnuts and reading paperback books.
What is income consumption curve in economics?
In economics and particularly in consumer choice theory, the income-consumption curve is a curve in a graph in which the quantities of two goods are plotted on the two axes; the curve is the locus of points showing the consumption bundles chosen at each of various levels of income.
What is indifference curve in business economics?
In economics, an indifference curve is a curve that shows the combination of two goods that give a consumer equivalent satisfaction and utility. An indifference curve represents a locus of points sharing between two different goods that give a consumer the same level of utility.
Why is it called indifference curve?
An indifference curve is a curve that represents all the combinations of goods that give the same satisfaction to the consumer. Since all the combinations give the same amount of satisfaction, the consumer prefers them equally. Hence the name indifference curve.
What are the 4 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.
What are the properties of indifference curve?
Why is indifference curve convex to Origin?
Indifference curves are convex to the origin because as the consumer begins to increase his or her use of one good over another, the curve represents the marginal rate of substitution. The marginal rate of substitution goes down as the consumer gives up one good for another, so it is convex to the origin.
What is the other name of indifference curve?
The diagram shows an Indifference curve (IC). Any combination lying on this curve gives the same level of consumer satisfaction. Another name for it is Iso-Utility Curve.
Can indifference curves of two consumers cross?
The indifference curves cannot intersect each other. It is because at the point of tangency, the higher curve will give as much as of the two commodities as is given by the lower indifference curve. Similarly the combinations shows by points B and E on indifference curve IC1 give equal satisfaction top the consumer.
What is the indifference curve theory in economics?
As indifference curve theory is based on the concept of diminishing marginal rate of substitution, an indifference curve is convex to the origin. According to this theory, a consumer always behaves in a rational manner, i.e. a consumer always aims to maximize his total satisfaction or total utility.
Can indifference curve intersect with each other?
Indifference curve cannot intersect each other. Each indifference curve is a representation of particular level of satisfaction. The level of satisfaction of consumer for any given combination of two commodities is same for a consumer throughout the curve. Thus, indifference curves cannot intersect each other.
How does indifference curve affect budget line?
Budget Line Since a higher indifference curve represents a higher level of satisfaction, a consumer will try to reach the highest possible IC to maximize his satisfaction. In order to do so, he has to buy more goods and has to work under the following two constraints: He has to pay the price for the goods and
Why does Mrs remain constant in an indifference curve?
If they could substitute one another perfectly, then MRS would remain constant. Here are the properties of an indifference curve: This slope signifies that when the quantity of one commodity in combination is increased, the amount of the other commodity reduces.
