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Properties of Indifference Curve - Class note

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Properties of Indifference Curve
Commodity of Y
Based on the assumptions and the law of diminishing marginal rate of substitution, the important properties of
indifference curves are as follows:
1) Indifference curve slopes downward to the right: IC is downward slopping from left to right. This implies
that the consumption of one commodity (Y) has to be decreased to increase the consumption of the other
commodity (X) if the consumer wants to remain at the same level of satisfaction.
Y
2
Y
1
IC1
X
X
0
2
1
Commodity of X
Commodity of Y
2) Higher level of indifference curve represents higher level of satisfaction: An IC that lies farther from the
origin provides higher level of satisfaction. It is because the higher IC consists the more amount of both or at
least one of the goods.
Y
1
IC2
IC1
0
X
X
1
2
Commodity of X
Commodity of Y
Here in the fig, IC2 gives more level of satisfaction than IC1. This is because IC2 contains more units of at least
one commodity.
3) Indifference curves do not intersect each other: Two IC can neither intersect or nor touch to one another.
If they did, the point of intersection would imply two different levels of satisfaction, which is impossible.
A
C
B
0
Commodity of X
Suppose two ICs intersect each other at point A
A = C (lies on the same IC2)
A = B (also lies on the same IC1)
It must be,
IC2
IC1
B = C (because of transitivity assumption). But it is impossible because point C gives higher level of
satisfaction than point B as it lies on higher IC below point of intersection.
Commodity of Y
4) Indifference curves are convex to the origin: The IC is always convex to the origin due to the diminishing
marginal rate of substitution. This implies that as he gets more and more of X he is ready to sacrifice less and
less of Y.
IC
0
Commodity of X
Commodity of Y
5) Indifference curve never touches either or both axes: An IC can’t touch either of the two axes. If it touches
any of the axis, it means the consumer is consuming only one good and none of other. This is against its
assumption of consumer consumes combination of two goods.
IC1
0
IC2
Commodity of X
Here combination A shows only combination of good Y without good X, and vice versa in case of combination
B, which can’t be.
Commodity of Y
6) Indifference curves need not to be parallel to each other: ICs need not to be parallel to each other. It is
because MRS may differ for different ICs. If MRS differs, slope of IC also differs.
IC3
IC1
0
Commodity of X
IC2
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