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Indifference Curve Analysis: by Group 3

This document discusses indifference curve analysis, which is a tool used to analyze consumer preferences. It defines indifference curves as lines connecting bundles of goods that yield the same level of utility or satisfaction for a consumer. The document outlines several key properties of indifference curves, including that higher curves represent higher levels of utility and that curves are downward sloping and bowed inward. It also discusses how a consumer's optimal choice can be determined by their budget constraint and highest attainable indifference curve.

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shruthikak
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35 views

Indifference Curve Analysis: by Group 3

This document discusses indifference curve analysis, which is a tool used to analyze consumer preferences. It defines indifference curves as lines connecting bundles of goods that yield the same level of utility or satisfaction for a consumer. The document outlines several key properties of indifference curves, including that higher curves represent higher levels of utility and that curves are downward sloping and bowed inward. It also discusses how a consumer's optimal choice can be determined by their budget constraint and highest attainable indifference curve.

Uploaded by

shruthikak
Copyright
© Attribution Non-Commercial (BY-NC)
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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By Group 3

Indifference Curve Analysis


Factors influencing Consumer
Choice
 Consumers have a choice of what goods/bundle to
consume
 Scarcity results in Consumer Choice becoming an
economic problem.
 Consumer choice entails :
 The economically feasible set (budget constraint)
 Preferences (indifference curves)
 Choice : Choose the bundle in the feasible set
which yields the highest utility.
Introduction to Indifference Curve

 A tool to analyze Consumer preferences


 If a consumer equally prefers two product
bundles, then the consumer is indifferent
between the two bundles. The consumer will get
the same level of satisfaction (utility) from either
bundles. Graphically speaking, this is known as
the indifference curve.
Indifference Curve

Good X

Good Y
Indifference Map
Marginal Rate of Substitution

 MRS is defined as the absolute value of the


slope of the indifference curve at that point.
 Willingness of the consumer to exchange one
good for another
Marginal Rate of Substitution
Good X
Good X

Good Y

Good Y
Properties of Indifference Curves

 Higher indifference curves are preferred to


lower ones.
 Indifference curves are downward sloping.
 Indifference curves do not cross.
Indifference curve do not cross
Properties of Indifference Curves

 Higher indifference curves are preferred to


lower ones.
 Indifference curves are downward sloping.
 Indifference curves do not cross.
 Indifference curves are bowed inward.
Types Of
Indifference
curves
Types of Indifference curve– Perfect
Substitutes
Types of Indifference curve–Perfect
Complements
The Consumer’s Optimum Choice

Good X

Good Y
Affect of Changing
Income on Consumer
choices
For Normal goods

Good X

Good Y
Y
For Inferior goods

Y Y Y
Importance of Indifference curve

 To determine Consumer Preferences


 To determine the demand
 To know the Competitiveness of the product
 The Income fluctuations influencing
consumer demand
To Conclude

 Indifference
curves allow us to consider the
behavior of consumers when they are
faced with combinations and bundles of
more than one commodity.

 Indifferencecurve analysis avoids the need


to measure utility in absolute terms and
requires only that consumer be able to state
his rank order of preferences for goods.

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