This document discusses indifference curve analysis, which is an approach to consumer choice developed by Edgeworth and later preferred by Hicks and Allen. It assumes consumers express their preferences over bundles of goods through indifference curves rather than quantifying utility. The key points are: - An indifference curve represents combinations of two goods that provide equal satisfaction or utility to a consumer. - Indifference curves have a negative slope and are convex, with the marginal rate of substitution decreasing along the curve. - Higher indifference curves correspond to higher levels of satisfaction. - An indifference schedule and map are used to graphically represent a consumer's preferences between combinations of goods.

2. Indifference curve analysis
0 Developed - Edge worth
0 It was later preferred by J.R Hicks & R.J.D. Allen
0 indifference curve approach is also known as ordinal
utility approach..
0 consumer express their utility in terms of preference
not in term of quantity.

3. ASSUMPTION OF
INDIFFERENCE CURVE
0 A consumer is assumed to buy any two goods in combinations.
0 A consumer can rank the alternative combinations and compare
their level of satisfaction, and he prefers a combination providing
a higher level of satisfaction.
0 Consumer is rational and his choices are transitive.
0 The consumer behavior is assumed to be constant, throughout
the analysis.

4. INDIFFERENCE CURVE
Good Y
0
An indifference curve may be defined as the
locus of various combination of two goods which
yield the same total satisfaction to the consumer
Good X

5. INDIFFERENT SCHEDULE
For eg:
0 The following table shows the indifference schedule of
combination of biscuits and cups of tea for a
consumer.
combination
A
B
C
D
E
F
Cups of Tea
1
2
3
4
5
6
+
+
+
+
+
+
+
Biscuits
50
38
26
21
17
15

6. Graphical representation of indifference schedule…
Y
60
A
BISCUITS
50
40
B
30
C
D
20
E
F
10
00
0
2
4
CUPS OF TEA
6
8
X

7. INDIFFERENCE MAP
A collection of indifference
curve is known as indifference map.
0 A higher indifference curve indicates a
higher level of satisfaction and vise
versa.
Good y
Y
0
0
Ic3
Ic2
Ic1
Good x
X

8. Thanks….

9. MARGINAL RATE OF
SUBSTITUTION(MRS)
 The MRS is the rate at which one commodity can be
substituted for another, the level of satisfaction
remaining the same.
 The marginal rate of substitution between two
commodities X and Y , may be defined as the quantity
of X which is required to replace one unit of Y , in the
combination of the two goods so that the total utility
remains the same.

10. The MRS is depends upon the prices of the commodity.
For ex; Two commodities like X and Y Prices of X is
assumed as RS.10 price of Y is RS.5 .If a consumer
have RS.200 as income he can purchase either 10
units of X and 20 units of Y .If the price of X increases
consumer substitute more Y by reducing the
consumption of X. The aim of consumer is maximum
satisfaction with his limited income.

11. PROPERTIES OF
INDIFFERENCE
CURVE

12. 1.INDIFFERENCE CURVE SLOPES
DOWNWORD FROM LEFT TO RIGHT;
Good Y
0
Indifference curve have a negative slope. It indicate
the marginal rate of substitution of the consumer.
Any point on indifference curve provide equal
satisfaction .
Good X

13. 2.CONVEXITY TO THE ORIGIN
0 The convexity of the indifference curves implies two properties
1. The two commodities are imperfect substitutes for one another.
2. The marginal rate of substitution (MRS) between two goods
decreases as a consumer moves along an indifference curve.
This characteristics of indifference curve is based on the
postulate of diminishing marginal rate of substitution.
Good Y

14. 3.INDIFFERENCE CURVE CANNOT
INTERSECT EACH OTHER
Y
IC2
IC1
X

15. 4. HIGHER INDIFFERENCE CURVE
SHOWS HIGHER LEVEL OF
SATISFACTION
Good Y
An indifference curve placed above and to the right
of another represents a higher level of
satisfaction than the lower one.
Consumers equilibrium
30
20
10
ic3
IC2
0
10 20 30 P
IC1
P1
Good X
Budget line

16. THANK YOU