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curve
Origin
The technique of indifference curves was
originated by Francis Y. Edgeworth, in
England in 1881. It was then refined by
Vilfredo Pareto, an Italian economist in
1906. This technique attained perfection
and systematic application in demand
analysis at the hands of Prof. John Richard
Hicks and R.G.D. Allen in 1934.
Meaning:
An indifference curve is the locus of points representing
all the different combinations of two goods which yield
equal level of utility to the consumer.
Indifference Schedule :
A 15 1
B 11 2
C 8 3
D 6 4
E 5 5
Indifference Curve (IC) shows all possible
combinations of apples and mangoes between
which a person is indifferent.
Point A shows consumption bundle consisting
of 15 apples and one mango. Moving from point A
to Point B, we are willing to give up 4 apples to get
a second mango (total utility is the same at points
A and B).
16
A
14
12
B
10
Apples
C
8
D
6 E
IC
4
2
0
0 1 2 3 4 5 6
Mangoes
Properties of indifference curves :
IC
O X
PRODUCT X
• Indifference curves can never
intersect each other
Indifference curves can never intersect each
other because each indifference curve
represents a specific level of satisfaction. If two
indifference curves intersect each other, then at
the point of intersection, the consumer is
experiencing two different levels of utility.
Y
PRODUCT Y
A B
E
IC
D
C
IC
O X
PRODUCT X
Higher Indifference Curve represents
higher satisfaction
Consumer Equilibrium
A consumer seeks a market basket that
generates the maximum level of happiness.
However, one’s money income and prices of
goods imposes a limit on the level of
satisfaction that one may attain. Thus, the
income at the disposal of the consumer in
conjunction with prices of the commodities
will determine the budgetary constraint or the
price line.
Assumptions to equilibrium of the consumer
Income (Y)= 60
Price of Biscuit (Px) = 6
Price of Coffee(Py) = 12
Combination Biscuit Coffee
A 10 0
B 8 1
C 6 2
D 4 3
E 2 4
F 0 5
Consumer’s Equilibrium or Maximization of Satisfaction
Thus the consumer’s equilibrium under the indifference curve theory must meet
the following two conditions: