Question

What is Indifference Curve ?

Hint:

The shape and position of indifference curves reveal a consumer's preferences. Their slope at any point is the Marginal Rate of Substitution (MRS).

Answer 1

Step 1: Understanding the Concept:
Indifference curves are a tool used in microeconomics to represent consumer preferences. They are the foundation of ordinal utility analysis.

Step 2: Detailed Explanation and Properties:
\begin{itemize} \item Graphical Representation: It is a curve where each point represents a "bundle" of two goods. \item Equal Satisfaction: Every point on a single indifference curve yields the same level of total utility. A consumer would be equally happy with any combination on that curve. \item Key Properties: \begin{enumerate} \item Downward Sloping: To get more of one good, the consumer must give up some of the other good to maintain the same level of satisfaction. \item Convex to the Origin: This reflects the principle of diminishing marginal rate of substitution (MRS). As a consumer has more of Good X, they are willing to give up less of Good Y to get an additional unit of X. \item Higher Curves Represent Higher Utility: An indifference curve that is further to the right and above another represents a higher level of satisfaction. \item They Never Intersect: Intersection would violate the assumption of transitivity and consistency in consumer preferences. \end{enumerate} \end{itemize}