StudentShare
Contact Us
Sign In / Sign Up for FREE
Search
Go to advanced search...
Free

An Indifference Curve - Essay Example

Cite this document
Summary
This essay "An Indifference Curve" focuses on a graph representation showing combinations of goods for which a consumer preference/utility is indifferent, that is, it has no preference for one combination versus another. They are used as a device to represent consumer preferences…
Download full paper File format: .doc, available for editing
GRAB THE BEST PAPER94.8% of users find it useful
An Indifference Curve
Read Text Preview

Extract of sample "An Indifference Curve"

Your First and sur Your Due Indifference Curve An indifference curve is a graph representation showing combinations of goods for which a consumer preference/utility is indifferent, that is, it has no preference for one combination versus another. They are used as a device to represent consumer preferences and are applied extensively in choice theory. The horizontal and vertical axes of the indifference curve graph represent the quantities of goods a consumer might consume, and the indifference curve itself represents a contour along which utility for that individual is constant.

The indifference curve varies from one consumer to another, which is due to their personal preference. The list of indifference curves associated with different utility levels is called an Indifference Map. The rational consumer prefers the higher or right-most, Indifference curve since they represent combinations of goods providing higher utility levels. The figure below shows the indifference map with three indifference curves: The slope of the indifference curve is called the marginal rate of substitution.

It is the rate at which consumers are willing to give up one good in exchange for more of the other good. For most goods, the marginal rate of substitution is not constant so their indifference curves are curved. Indifference curves are typically assumed to have the following features: Indifference curves do not intersect. The curves are convex due to the law of diminishing marginal utility). There exists an indifference curve through any given point on an indifference map. Today's Economy is a market driven where the customer is the king.

The market price is determined by forces of 'Demand and Supply'. To excel in the market, the firms must assess the demand of the customer. Consumer theory uses indifference curves and budget constraints to produce consumer demand curves. A budget constraint shows the consumer's purchase opportunities as every combination of two goods that can be bought at given prices using a given amount of income. A consumer's optimal combination of goods to consume is the amount that maximizes his utility subject to his/her budget constraint.

In the indifference curve graph, a consumer has the following preference: Get to the highest indifference curve possible and stay on the budget constraint Utility is maximized when the indifference curve is just tangent to the budget line. Hence, the indifference curve is an important tool in the hand of firms to assess customer demand.

Read More
Cite this document
  • APA
  • MLA
  • CHICAGO
(“Indifference Curve Essay Example | Topics and Well Written Essays - 500 words”, n.d.)
Retrieved from https://studentshare.org/miscellaneous/1513277-indifference-curve
(Indifference Curve Essay Example | Topics and Well Written Essays - 500 Words)
https://studentshare.org/miscellaneous/1513277-indifference-curve.
“Indifference Curve Essay Example | Topics and Well Written Essays - 500 Words”, n.d. https://studentshare.org/miscellaneous/1513277-indifference-curve.
  • Cited: 0 times

CHECK THESE SAMPLES OF An Indifference Curve

Microeconomic and Consumer Theories

he slope of An Indifference Curve shows the maximum number of units of a particularly good a consumer is willing to substitute to acquire one unit of the other thus providing an economic way of understanding what the indifference curve really shows.... It is also worth noting that the slope of An Indifference Curve depends on the consumption bundle considered.... The slope of An Indifference Curve represents the marginal rate of substitution between two products (Sirgy 1982, pp....
7 Pages (1750 words) Essay

Impact of Scarcity and Choice on the Laws of Supply and Demand

An Indifference Curve is a two-dimensional graphical representation of all those bundles of two goods which can be combined to give a consumer the same amount of utility which is also a maximum utility for combinations of given goods.... The indifference curve is a particular selection of such combinations of goods, from out of the plot area, and all combinations on An Indifference Curve represent the fact that the consumer derives the same amount of total utility from consumption....
3 Pages (750 words) Essay

What Is an Indifference Curve

The paper "What Is An Indifference Curve" discusses that the consumer would most probably define another indifference curve for himself.... An Indifference Curve is a two-dimensional graphical representation of all those bundles of two goods that can be combined to give a consumer the same amount of utility which is also a maximum utility for combinations of given goods.... The indifference curve is a particular selection of such combinations of goods, from out of the plot area, and all combinations on An Indifference Curve represent the fact that the consumer derives the same amount of total utility from consumption....
4 Pages (1000 words) Essay

The Importance of Maximizing Consumer Satisfaction

An Indifference Curve, on the other hand, is any combination of goods that will give the consumer an equal level of satisfaction making an individual indifferent about any combination on An Indifference Curve.... A consumer optimizes his utility at a point where the budget constraint line of the consumer is tangent to his indifference curve....
8 Pages (2000 words) Case Study

Risk & Uncertainty - Microeconomics 3rd Year

An Indifference Curve through the original point yields the diagram above (right).... A fair line F implies that An Indifference Curve is tangent to the line at F.... n diagram above (right) E (fixed loading) is larger this implies x = 0 with fixed loading and the optimal choice is no insurance in this case as the indifference curve lies above the actuarial line which is suggestive that it does provide the level of utility required by the individual....
4 Pages (1000 words) Essay

The Economists Dictionary of Economics

The paper "The Economists Dictionary of Economics " states that if the price of one good were to change, and the price of all other goods was to remain the same, the slope of the budget line would also change, resulting in a different point of tangency and a different quantity demanded.... .... ... ...
6 Pages (1500 words) Term Paper

Chapter 1 problems

Additionally, if we were to draw An Indifference Curve, I will be at a higher indifference curve than Joe (Frank & Bernanke, 2013).... The question lie under the context of micro economics whereby, according to Arnold 2010, a rational consumer is the one who maximizes his utility subject to his income constraint commonly known as his budget line....
1 Pages (250 words) Assignment

Micro and Macroeconomics and Neoricardian Theory

higher indifference curve represents a higher level of satisfaction: a higher level of satisfaction is represented by An Indifference Curve that lies above and to the right of another indifference curve.... That is a consumer will prefer commodity X to commodity Y if commodity X has An Indifference Curve that lies higher than that of commodity Y.... That is, as a consumer substitutes product Y for product X, the marginal rate of substitution diminishes of good Y for good X along the same indifference curve....
7 Pages (1750 words) Essay
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.
Contact Us