Question

What are Indifference Curves ?

Hint:

The slope of the Indifference Curve is the Marginal Rate of Substitution (MRS), which tells us the rate at which a consumer is willing to trade one good for another.

Answer 1

Step 1: Understanding the Concept:
Indifference curve analysis belongs to the "Ordinal Utility" school of thought, which suggests that utility cannot be measured in numbers but can be ranked.
Step 2: Detailed Explanation:
The consumer is "indifferent" between the combinations on the curve because they all yield the same utility.
Key characteristics of an IC:
1. Negative Slope: To get more of one good, the consumer must give up some of the other to keep satisfaction constant.
2. Convex to the Origin: This is due to the Law of Diminishing Marginal Rate of Substitution (MRS).
3. Higher IC = Higher Satisfaction: A curve further to the right represents more goods and thus more utility.
4. Non-Intersecting: Two ICs can never cross because each curve represents a unique, consistent level of satisfaction.
Step 3: Final Answer:
An indifference curve is a graphical representation of different bundles of two commodities that leave the consumer equally well-off.