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 Price Effect

The effect of a change in the price of a commodity on its purchase is known as the price effect. The Price Consumption Curve (PCC) traces the price effect. Suppose the price of oranges falls while the price of bananas remains unchanged. The effect of such a fall in the price of oranges will be: […]

The Substitution Effect

Given a constant money income, a change in the relative prices of two goods may force a consumer to rearrange his purchases. He may re-arrange his purchased of the tow goods in such a way that his satisfaction remains the same. This is known as the substitution effect. This substitution effect refers to the change […]

Consumer’s Equilibrium

A consumer shall be in equilibrium where he can maximize his utility, subject to his budget line are target to each other (i.e. where their shapes are equal, the consumer would be in equilibrium as that combination of the goods X and Y gives maximum satisfaction to the consumer that is, this is the highest […]

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 […]

The law of Diminishing Marginal Rate of substitution with the help of a diagram

Marginal Rate of Substitution A consumer remains indifferent between different combinations of goods on an indifference curve. Therefore, to remain on the same indifference curve the consumer has to substitute one commodity for another by just that much amount which keeps him at the same level of satisfaction. There rate at which the consumer is […]

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 […]

Properties of an Indifference Curves

From the above discussion one gets that the indifference curves have four basic properties. Let us examine these properties in detail. Each point in a commodity space is on an indifference curve. The point on indifference shows the combination of goods say X and Y. The indifference curve are plotted in a specific space is […]

Assumptions of Indifference Curve

Assumptions of Indifference Curve Analysis In indifference curve analyses the consumer behavior is based on some assumptions. Prof. W. J. Baumol and others have taken the following major assumptions. Perfect Knowledge. A consumer is assumed to have complete knowledge regarding the type of goods available, their prices and their capacity to satisfy a want. He […]

Meaning of Indifference Curves

  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 […]