Convexity of indifference curve
Topic: Consumer Behaviour, Demand and Elasticity · NCERT: Class 12, Ch 2 "Theory of Consumer Behaviour"
Meaning
An indifference curve (IC) usually bows inward toward the origin. This shape is called convexity. It comes from the law of diminishing marginal rate of substitution (MRS). MRS is the number of units of one good a consumer will give up to get one more unit of the other while staying equally satisfied. As she gets more bananas, each extra banana is worth less to her. As her mangoes become fewer, each remaining mango is worth more. So she gives up fewer and fewer mangoes for each extra banana, and the curve becomes flatter as it moves right.
Example
Moving from 1 to 4 bananas, the consumer's mangoes go from 15 to 12, then 10, then 9. She gives up 3 mangoes, then 2, then 1 for each extra banana. The MRS falls from 3:1 to 2:1 to 1:1, which gives the curve its bowed shape.
Don't confuse with
- Straight-line IC: for perfect substitutes, such as ₹5 notes and ₹5 coins, the MRS stays constant at 1:1, so the IC is a straight line and not convex.
Related concepts
- Ordinal utility analysis
- Indifference curve
- Marginal rate of substitution
- Law of diminishing marginal rate of substitution
- Perfect substitutes
- Monotonic preferences
- Indifference map
- Properties of indifference curves
- Utility function
- Revealed preference