Introduction to indifference curves and budget lines. An indifference curve is a locus of all combinations of two goods which yield the same level of satisfaction utility to the consumers. If you continue browsing the site, you agree to the use of cookies on this website. Lecture notes principles of microeconomics economics. Econ 2310 lecture notes fall 2017, lecture 4 utility. The indifference curve technique has come as a handy tool in economic analysis. By a consumer we mean a person who has the opportunity to buy. Edgeworth, it is widely used as an analytical tool in the study of consumer. Download financial accounting notes book, syllabus pdf bba, bcom 2020. Explain the concept of price, income, cross elasticity of demand.
Consumers equilibrium notes microeconomics cbse class 11th. Similarly all the combinations lying on indifference curve ii provide the same satisfaction but the level of satisfaction on indifference curve ii will be greater than the level of satisfaction on indifference curve i likewise, all higher indifference curves, iii, iv and v represent progressively higher and. Thus, the tradeoff between the goods that the individual is willing to undertake mrs. Lecture notes economics indifference curve analysis studocu. Economics notes for properties of indifference curve. Indifference curve approach free notes for economics class 12. It implies that the consumer still has the willingness to consume more of both the goods. Notes for cbse class 11th chapter 2 consumers equilibrium. In figure 1, indifference curve ul can be thought of as a low level of utility, while um is a medium level of utility and uh is a high level of utility. In other words, the indifference curve is relatively flatter in its righthand portion and relatively steeper in its lefthand. Consumer theory mark dean lecture notes for fall 2009 introductory microeconomics brown university 1introduction in this section of the course we will examine the standard methods that economists use to model the behavior of consumers. It has freed the theory of consumption from the unrealistic assumptions of the marshallian utility analysis.
This approach assigns an order to consumer preferences rather than measure them in terms of money. Since more is better, an indifference curve cannot have a positive slope. Pdf the thesis of this paper is that when the indifference curve is. The thesis of this paper is that when the indifference curve is concave to the origin, the optimal point on the budget line is not the corner solution on the highest most north eastern. Notes on indifference curve analysis of the choice between. Lilly would receive equal utility from all points on a given indifference curve. It is a curve that represents all the combinations of goods that give the same satisfaction to the consumer. Economics online classes at takshila learning is an easy, convenient and simple way to understand the concepts of economics class 12. All of the choices on indifference curve uh are preferred to all of the choices on indifference curve um, which in turn are preferred to all of the choices on ul. These points and all others on a smooth curve connecting them constitute an indifference set.
Since any combination of the two goods on an indifference curve gives equal level of satisfaction, the consumer is indifferent to any combination he consumes. This is based on consumer preference and believes that we cannot quantitatively measure human satisfaction in monetary terms. Apr 27, 2020 chapter indifference curve chapter notes, micro economics, class 12 edurev notes is made by best teachers of commerce. Consumer preference theory a notion of utility function b axioms of consumer preference c monotone transformations 2. This document is highly rated by class 11 students and has been viewed 3787 times. Explain the concept of cost and discuss various types of costs. Note that the tu rises by smaller and smaller amounts the shaded areas. Business economics notes pdf, paper bba, bcom 2020.
Theory of choice a solving the consumers problem ingredients characteristics of the solution interior vs corner. Indifference curves given the three basic assumptions disussed in the previous section, a consumers tastes and preferences can be indicated by means of an indifference curve. Chapter indifference curve chapter notes, micro economics, class 12. That is, any combinations of two products indicated by the curve will provide the consumer with equal levels of utility, and the consumer has no preference for one combination or bundle of goods over a different combination on the same curve. Describe the steps and criteria in demand forecasting. An indifferent curve is drawn from the indifference schedule. The indifference curve is a graph showing the different combinations of two goods that report the same satisfaction to a person, and are preferred to other combinations. Jan 06, 2017 an indifference curve shows combinations of goods and services between which a consumer is indifferent. Lecture 3 axioms of consumer preference and the theory of. The subtopics for each lecture are related to the chapters in the textbook. Dec 16, 2010 indifference curves and utility maximization indifference curve a curve that shows combinations of goods which gives the same level of satisfaction to the slideshare uses cookies to improve functionality and performance, and to provide you with relevant advertising. In other words, each combination on an indifference curve gives the consumer the same total.
Here is an example to understand the indifference curve better. An indifference curve represents a series of combinations between two different economic goods, between which an individual. At the optimum, the indifference curve is tangent to the budget constraint so their slopes are equal. Consumers equilibrium through indifference curve analysis. Because these choice sets for a,b are separated by the price ratio, we know they will be tangent to one another but will not intersect. And, indifference curve theory assumes that the consumer has not reached the point of satiety. This example shows how to use a budget constraint and indifference curve diagram to analyze how a tax affects choices regarding labor supply the number of hours worked. In this chapter we first explain what indifference curves are, and indicate their important properties. The consumers equilibrium in explained by combining the budget line and the indifference map.
The correct and the in correct 17 beers makes both parties better off, since both point g 10 beers and point h 10 apples are preferred to point f 5 of each. The indifference curve shows the different combinations of two goods that give equal satisfaction and utility to the consumers. Notes on indifference curve analysis of the choice between leisure and labor, and the deadweight loss of taxation. An indifference curve shows combinations of goods and services between which a consumer is indifferent. This section provides lecture notes from the course. Law of diminishing marginal utility dmu, assumptions of law of dmu, relationship between totally utility and marginal utility. Lecture notes economics indifference curve analysis.
Meaning an indifference curve is a graphical presentation of locus of all such points which shows different combinations of two commodities which gives equal satisfaction to the consumer. Examples of indifference curves left and right shoes \ right shoes left shoes 1 5 7 2 4 3 8 6 i1 i2 examples of indifference curves left and right shoes \ right shoes left shoes 1 5 7 2 4 3 8 6 i1 i2 i3 examples of indifference curves third example indifference curves between bourbon and temperance lectures for w. When one arrives at two options that are indifferent to the individual, these two points that represent them are on the same indifference. In economics, an indifference curve connects points on a graph representing different quantities of two goods, points between which a consumer is indifferent. A popular alternative to the marginal utility analysis of demand is the indifference curve analysis. An indifference curve shows the combination of two products that provide an individual with a given level of utility satisfaction. An indifference curve defines the substitution between goods x and y that is. Developed by the irishborn british economist francis y. The indifference approach analyse a variety of other choices, apart from consumers choices between different goods and services. Online classes for economics at takshila learning are one of the simplest, easiest and most convenient options for the students these days to gain knowledge at their doorstep. An indifference curve represents a series of combinations between two different economic goods, between which an individual would be theoretically indifferent regardless of.
Apr 21, 2020 consumers equilibrium through indifference curve analysis class 11 notes edurev is made by best teachers of class 11. Jul 07, 2017 indifference curve approach free notes for economics class 12. Definition an indifference curve is a curve which shows all the combinations of two products. The consumer always tends to move to a higher indifference curve seeking for higher satisfaction. As we move towards the southeast along a typical indifference curve the consumer receives more x and less y, while she declares that she is equally well off. The difficulty with a rejection of transitivity which underlies indifference curve analysis is a reductio ad absurdum, based upon the money pump. As the consumer increases x by one unit, heshe must sacrifice y to remain at fixed u. Aec 250 1 notes on indifference curves like any other model, an indifference curve is a simplified representation of the real world. Other critics note that it is theoretically possible to have concave indifference curves or even circular curves that are either convex or concave to. Since all the combinations give the same amount of satisfaction, the consumer prefers them equally. It is a curve, convex from below, that separates the consumption bundles that are more preferred by an individual from those that are less preferred. Indifference curve definition according to hicsallen indifference curve means all those combinations of goods that give equal satisfaction to the consumer so he will be indifferent between them and it will not matter to him which one he gets. Financial accounting pdf notes, syllabus 2020 bba, bcom.
We know that a consumer is indifferent among the combinations lying on the same indifference curve. Any combination on a higher indifference curve will be preferred to any combination on a lower indifference curve. Online classes for economics notes properties of indifference. Indifference curve, in economics, graph showing various combinations of two things usually consumer goods that yield equal satisfaction or utility to an individual. Chapter indifference curve chapter notes, micro economics. It explains consumer behaviour in terms of his preferences or rankings for different combinations of two goods, say x and y. The uses or application of indifference curve analysis. This document is highly rated by commerce students and has been viewed 332 times.
Financial accounting study material includes financial accounting notes, financial accounting book, courses, case study, syllabus, question paper, mcq, questions and answers and available in financial accounting pdf form. Aug 23, 2018 apr 21, 2020 consumers equilibrium through indifference curve analysis class 11 notes edurev is made by best teachers of class 11. Another important property of indifference curves is that they are usually convex to the origin. In other words, the indifference curve is the graphical representation of different combinations of goods generally two, for which the consumers are indifferent, in terms of the overall satisfaction and the utility. Indifference curves and utility maximization indifference curve a curve that shows combinations of goods which gives the same level of satisfaction to the slideshare uses cookies to improve functionality and performance, and to provide you with relevant advertising.
However, it is important to note that he prefers the. An indifference curve is a graphical representation of an indifferent set. The indifference curve analysis measures utility ordinally. If two commodities are perfect substitute the indifference curve is a straight line. Bain prefers all the combinations on indifference curve b to those on curve a, and she regards each of the combinations on indifference curve c as inferior to those on curves a and b. The price line pt is tangent to the indifference curve ic 2 at point c. An indifference curve represents a consumers tastes and preferences. An indifference curve defines the substitution between goods x and y that is acceptable in the mind of the consumer. These lecture notes were prepared by xingze wang, yinghsuan lin, and frederick jao specifically for mit opencourseware. The lecture notes are from one of the discussion sections for the course. Indifference curve analysis suggests that the rational consumer has many such points of indifference, depending on the budget available to them, and on other significant factors which affect the consumers preferences between two goods.
Lecture 3 axioms of consumer preference and the theory of choice david autor 14. The helpful dashed line can be drawn tangent to the new. An indifference curve is a graph showing combination of two goods that give the consumer equal satisfaction and utility. We begin the study of the economic behavior of the consumer by examining tastes. Most generally and assuming youre referring to a utility map, it helps us understand the combinations of goods that lead to various levels of utility and most importantly helps us understand which combination maximizes utility subject to a bud.
Explain the meaning of indifference curve and list its properties. What is the importance of the indifference curve analysis in. It is thus clear that the indifference curve lying above and to the right of an indifference curve will indicate a higher level of satisfaction. An indifference curve shows combinations of goods that provide an equal level of utility. A c t i v e l e a r n i n g 44 the substitution effect in two cases 28 but the substitution effect is bigger for substitutes than complements. In general, there is an indifference curve through any point in xy space. Consumers tastes can be related to utility concepts or indifference curves. Each persons optimal choice will therefore be the highest indi.
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