Question

What do you mean by an Indifference Curve? Discuss its salient features.

Hint:

Indifference curves are downward sloping, convex, non-intersecting; higher IC $\Rightarrow$ higher utility.

Answer 1

An indifference curve (IC) is the locus of combinations of two goods that give the consumer the same level of satisfaction; the consumer is "indifferent" among all bundles on a single IC. The higher an IC, the greater the utility it represents (assuming "more is better").
Assumptions: Rational consumer; monotonic preferences (non-satiation); goods are divisible; and ordinal utility.
Salient features: (1) Downward sloping: To keep utility constant, an increase in one good must be offset by a decrease in the other (negative slope). (2) Convex to the origin: Diminishing Marginal Rate of Substitution (MRS) — as the consumer substitutes good $X$ for $Y$, the amount of $Y$ they are willing to give up per extra unit of $X$ falls. (3) Do not intersect: If two ICs crossed, it would violate transitivity and monotonicity (same bundle giving two different utility levels). (4) Higher ICs show higher satisfaction: Bundles on a higher curve have more of at least one good and not less of the other. (5) ICs are dense: Between any two ICs, there exists another IC, reflecting continuity of preferences. (6) MRS equals IC's (absolute) slope: $MRS_{XY}=\left|\frac{dY}{dX}\right|$, which typically diminishes along the curve.
Diagram (verbal): On a two-good plane ($X$ on horizontal, $Y$ on vertical), draw a family of smooth, downward-sloping, convex curves $IC_1, IC_2, IC_3$ with $IC_3$ farthest from the origin. The slope at any point equals the MRS.
Use: Together with the budget line, ICs determine consumer equilibrium where $MRS_{XY}=\frac{P_X}{P_Y}$ at the tangency point.
Limitations: Ignores income effects across widely separated ICs; assumes stable preferences and continuous divisibility, which may not always hold.