Indifference curve
Also called: IC · Topic: Consumer Behaviour, Demand and Elasticity · NCERT: Class 12, Ch 2 "Theory of Consumer Behaviour"
Meaning
An indifference curve (IC) joins all bundles of two goods that give the consumer the same satisfaction, so she does not mind which one she gets. It comes from the ordinal approach (Hicks and Allen, 1934), which only ranks bundles and does not measure utility. ICs slope downward, are usually convex to the origin, and never cross each other. With monotonic preferences, where more of a good is always better, a higher IC means more satisfaction. The consumer is at her best choice where her budget line just touches the highest possible IC.
Example
A consumer is equally happy with (1 banana, 15 mangoes), (2, 12), (3, 10) and (4, 9). All four bundles lie on one indifference curve. The bundle (2, 15) would lie on a higher IC.
Don't confuse with
- Budget line: this shows bundles that cost the same, meaning exactly her income. An IC shows bundles that give the same satisfaction.
Related concepts
- Ordinal utility analysis
- Marginal rate of substitution
- Law of diminishing marginal rate of substitution
- Convexity of indifference curve
- Perfect substitutes
- Monotonic preferences
- Indifference map
- Properties of indifference curves
- Utility function
- Revealed preference