Pareto, an Italian economist, first invented the concept of indifference curve. Edge worth stated this device in his book ‘Mathematical Physics’. Later it was developed and applied to economic analysis by economists like
Hicks and Allen
Indifference curve is a geometrical identity that exhibits the various amounts of two or more commodities, which yield the same satisfaction to the consumer. Some of the important definitions are as under:
“Indifference Curve is that path on which a substitution of a particular commodity by another in any manner or quantity gives the consumer the same satisfaction in any position.”
- J. Boumol
“An Indifference curve as the locus of points each of which represents a collection of commodities such that the consumer is indifference among any of these combinations.”
“Indifference Curve is a boundary line separating two areas i.e. areas showing combinations of higher and lower levels of satisfaction. All points on an indifference curve represent the same level of satisfaction.”
The indifference curve is a graphical representation of an indifference schedule. Indifference Schedule lists all those different combinations of the goods, which give exactly the same satisfaction to the consumer, in other words the consumer is indifferent between these combinations. It is shown in the following table.
An Indifference Schedule
|Name of the combination||Units of goods X||Units of goods Y|
In the table the consumer is indifferent between seven combinations of goods X and Y. He gets same satisfaction when we consume 1 X and 30 Y. He gets the same level of satisfaction when consume 2X and 2Y or 4X and 15Y or 7X and 9Y. When these combinations are represented graphically and joined together with the help of a curve, we get an indifference curve. An indifference curve shows the one particular level of satisfaction. The family or group of indifference curves is known as Indifference map. In the indifference map a higher indifference curve shows the higher level of satisfaction. An indifference curve shown below shows various combinations A, B, C, D, etc. of goods X and Y which Yield the same satisfaction to the consumer.
The indifference curve slopes downward from the left to right to indicate that less units of Yth commodity represented on axis-OY so that the total satisfaction may remain the same will accompany more unity of X represented on OX-axis. As more units of X are added, fewer units of Y need be given up, so as to maintain the same satisfaction. The second combination shows that even if the consumer has an extra unit of X the total utility can remain the same if he gives up 6Y. That is the consumer can substitute one unit of X by 6Y. In the third combination one unit of X substitute only 5 Y, in the fourth combination one cup substitutes only 4Y and so on. The rate of substitution can be defined as the rate at which a consumer can exchange very small amounts of another commodity for a very small amount of another commodity without affecting the total utility.