What are the characteristics of Indifference Curve?
In previous sessions, we discussed in detail about the
Indifference Curve. We first discussed the normal case of indifference curve
with a bundle of goods having combination of two goods, where in a consumer is
indifferent between different combination of the same till the total utility
from that bundle remains constant. Suppose if the bundle consists of Apples and
Bananas having a certain utility then, increase in one and simultaneously
decrease in another, resulting in keeping the utility level same to the
consumer, all these bundle would fall in a curve shaped line on a graphical
presentation, which we call the indifference curve as the consumer is
indifferent. But in this case, the simultaneous increase in one good and
decrease in another is not equal because the Marginal Rate of Substitution is
diminishing with each such cycle. Now in the second case, the increase and
simultaneously decrease happens in constant proportion i.e., both goods are
perfect substitute of each other (for example, a 10-rupee note and 10-rupee
coin) which results in the Marginal Rate of Substitution to remain constant and
hence the indifference curve is a straight line on a graphical presentation.
We also discussed the Indifference Map which is family of
set of indifference curves which represent bundles of goods having equal
utility. The concept of Monotonic Preferences rationale gives birth to multiple
indifference curves showing multiple bundles of goods. The monotonic
preferences say that, between two bundles of goods, (a1, b1) and (a2, b2), if
a1>a2 and b1 is no less than b2; then consumer is bound to prefer the 1st
bundle i.e., (a1, b1) as it offers greater utility. So it means if between two
bundles having combination of two goods, one bundle gives more of one good and
has second good no less than other, then the bundle with more of a single good
will be preferred by the consumer.
In this session, we will discuss the features of
Indifference curve.
Characteristics of Indifference Curve
(1) Indifference Curve is downward sloping from left to right
The indifference curve slopes downward from left to right.
This simply means that in a bundle of two goods (say for example Apples and
Bananas), an increase in one good needs to get set off with decrease in the
other good. That is to say, in order to have more bananas, consumer will have
to forego some apples in order to maintain the utility level of the bundle
constant and vice versa. Because if it doesn’t happen and if quantity of
bananas increase, without any decrease in apples, then this leads to increase
in the total utility of the bundle which then falls in the higher indifference
curve, i.e., above the previous one. So to say, till the consumer is on the
same indifference curve, increase in quantity of one is bound to get set off
with the decrease in the other. Here in the example, increase in bananas –
decrease in apples or vice versa.
Let us take an example;
Bundles Bananas Apple A 1 15 B 2 12 C 3 10 D 4 9
The graphical representation shows exactly what we discussed
as above.
(2) Higher Indifference curve denotes greater utility level to
the consumer
We discussed in the previous session about the monotonic
preferences, which refers to the phenomenon which says, that consumer always
prefers bundles having more quantity of a particular good as compared to other
bundles with remaining goods being equal or less than the preferred bundle. So
to say, as long as the marginal utility of a particular good, service or
commodity is positive i.e., greater than zero, the consumer will always prefer
to have more of that as every additional unit of that will result in greater
level of utility or satisfaction.
Let us understand the same with an example.
|
Bundles |
Bananas |
Apple |
|
A |
1 |
10 |
|
B |
2 |
10 |
|
C |
3 |
10 |
(3) Two Indifference Curves cannot intersect each other.
If we take a look at any indifference map, we see that two
indifference curves never intersect each other. Intersection of two
indifference curves leads to falsify the phenomenon monotonic preferences and
provides conflicting result.
|
Combination |
Bananas |
Apples |
|
A |
7 |
10 |
|
B |
9 |
7 |
|
C |
9 |
5 |
Here in the above graphical representation, we see that
point A and B showing the A and B combination lie on same indifference curve -1
which means that both A and B gives the same level of utility or satisfaction.
At the same time, point B and B showing the B and C combination lie on same
indifference curve -2 which means that both B and C gives the same level of
utility or satisfaction. This rationale leads to conclusion that even combination
B and C are equal. But that is false. Because combination B has 2 apples more
than C, keeping the bananas equal at 9 quantities, which clearly means and
shows that combination B should provide higher level of utility than A, proving
the above hypothesis wrong. Thus it proves that intersecting indifference
curves provide false results and hence concluding that two indifference curves
can never intersect each other.
Conclusion
In this session we discussed in details about the features
or characteristics of indifference curves. Summarizing, it is important to
remember that Indifference curves are downward sloping, higher indifference
curves shows greater level of utility or satisfaction and lastly that two
indifference curves never intersect each other.
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