What is difference curve in economics?
What is difference curve in economics?
An indifference curve shows a combination of two goods that give a consumer equal satisfaction and utility thereby making the consumer indifferent. Along the curve, the consumer has an equal preference for the combinations of goods shown—i.e. is indifferent about any combination of goods on the curve.
What are the different types of indifference curves?
Indifference curves for normal goods, substitutes and perfect complements.
How do you determine the shape of an indifference curve?
Indifference curves have a roughly similar shape in two ways: 1) they are downward sloping from left to right; 2) they are convex with respect to the origin. In other words, they are steeper on the left and flatter on the right.
Can indifference curves be concave?
Indifference curves can be straight lines if a slope is constant, resulting in an indifference curve represented by a downward-sloping straight line. If the marginal rate of substitution is increasing, the indifference curve will be concave to the origin.
What are the four properties of indifference curves?
The four properties of indifference curves are: (1) indifference curves can never cross, (2) the farther out an indifference curve lies, the higher the utility it indicates, (3) indifference curves always slope downwards, and (4) indifference curves are convex.
Why can’t indifference curves be upward sloping?
A set of indifference curves can be upward sloping if we violate assumption number three; more is preferred to less. When a set of indifference curves is upward sloping, it means one of the goods is a “bad” so that the consumer prefers less of that good rather than more.
Why are indifference curves concave?
Concavity of the indifference curves implies that the marginal rate of substitution of X for y increases when more of X is substituted for Y. It will be clear from the analysis made below that in case of indifference curves being concave to the origin the consumer will choose or buy only one good.
How are indiff curves used in microeconomics?
Indiff. curves are convex Intuition – As consumer has more X and less Y (retaining indifference) values X relativelyless: willing to give up less of Y to get even more X This may not always be true, but failure of this assumption is not so important in international trade context so we assume it holds. 4
Which is an example of an indifference curve?
An indifference curve shows all combinations of goods that provide an equal level of utility or satisfaction. For example, Figure 1 presents three indifference curves that represent Lilly’s preferences for the tradeoffs that she faces in her two main relaxation activities: eating doughnuts and reading paperback books.
Which is a higher indifference curve um or um?
Higher indifference curves represent a greater level of utility than lower ones. In Figure 1, indifference curve Ul can be thought of as a “low” level of utility, while Um is a “medium” level of utility and Uh is a “high” level of utility.
Is there an indifference curve that touches the budget line?
The highest achievable indifference curve touches the budget constraint at a single point of tangency. Since an infinite number of indifference curves exist, even if only a few of them are drawn on any given diagram, there will always exist one indifference curve that touches the budget line at a single point of tangency.