Indifference Curve, Indifference Map & Properties of Indifference Curve

1 Mark Questions

1. Define an indifference curve. (All India 2014, Delhi 2010)

Ans. Indifference curve is a curve showing different combinations of two goods, each combination offering the same level of satisfaction to the consumer. So that the consumer is indifferent, between all set of bundles.

1. What is meant by monotonic preferences. (All India 2014) or

What are monotonic preferences? (Delhi 2010)

Ans. Monotonic preferences means that greater consumption of a commodity by the consumer gives him higher level of satisfaction, as compared to less.

1. Define an indifference map. (Delhi 2010; All India 2010)

Ans. Indifference map refers to a set of indifference curves corresponding to different income levels of the consumer.

<math>\vee</math>

Good 2

0 Good 1

Indifference map

3 Marks Questions

1. Explain the meaning of Diminishing Marginal Rate of Substitution with the help of a numerical example. (All India 2013)

Ans. Marginal Rate of Substitution refers to the rate at which the consumer is willing to sacrifice one good to obtain one more unit of the other good.

<math display="block">MRS_{xy} = \frac{\text{Quantity of the Good Sacrificed}}{\text{Quantity of the Good Obtained}} \text{ or } \frac{\Delta Y}{\Delta X}</math>

For example, ( 2)

Combinations Good X Good Y Marginal Rate of Substitutions

Α 8 В 2 4 4Y:1X

C 3 2 2Y:1X

D 4 1Y:1X (2) <math>\therefore</math> He is willing to sacrifice less unit of Y to obtain additional unit of X as shown in the schedule

1. Define Marginal Rate of Substitution. Why is an indifference curve convex? (Delhi 2012)

or Define an indifference curve. Why is it convex to the origin? (All India 2011)

Ans. Marginal Rate of Substitution Marginal Rate of Substitution refers to the rate at which the consumer is willing to sacrifice one good to obtain one more unit of the other good.

<math>MRS_{xy} = \frac{Quantity of the Good Sacrificed}{}</math> ×у Quantity of the Good Obtained or — ΔΥ <math>\Delta X</math>

For example,

Combinations Good X Good Y Marginal Rate of Substitutions

Α 8 В 2 4 4Y:1X

С 3 2 2Y:1X

D 4 1Y:1X (2) :. He is willing to sacrifice less unit of Y to obtain additional unit of X as shown in the schedule

Indifference curve is a curve showing different combinations of two goods, each combination offering the same level of satisfaction to the consumer. So that the consumer is indifferent, between all set of bundles.

Indifference curves is convex to the point of origin because of diminishing Marginal Rate of Substitution. We can say that for every additional unit of a good, a consumer is willing to give up less and less amount of another good as the utility that he derives from its consumption goes on diminishing.