Criticism of the indifference Curve Analysis

The indifference curve analysis is based on the wrong assumption that the consumer is familiar with his entire preference schedule. It may not be realistic on our part to make this assumption because it is not physically possible for a consumer to have complete knowledge of all the combinations of the tow goods, which afford […]

The Income Effect

The effect of a change in the consumer’s income on his total satisfaction is known as income effect. A consumer will be able to enjoy more or less satisfaction when his income increases or decreases assuming that the prices of goods he purchases remain constant. Every increase in income brings him down to a lower […]

Budget Line

The budget line is defined as, “The locus of all combinations of commodities which cost some fixed amount of money while the prices are held as constant.” This line shows the various amounts of two or more commodities with a given amount of money a consumer can buy when the relative prices are held as […]

Indifference Curve and Schedule

Indifference Schedule Combinations                              Good X Y Goods                                M.R.S.  1          20                                           1                                                 – 2           15                                           2                                               1:5 3           11                                           3                                             1:4 4           8                                             4                                          1:3 5           6                                             5                                          1:2 6           5                                             6                                                    1:1 In order to get the second X the consumer is willing to part with 5X(20-15=5) for the third X he […]

Indifference Curve (full)

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 […]