Tuesday, October 19, 2010

Indifference curve

An indifference curve is a line that shows combinations of goods among which a consumer is indifferent. The indifference curve tells us that some one is just as happy to consume the combination of at a point of any other point along the curve.
In the next figure we can see that, we measure units of clothing on one axis and units of food on the other. Each of our four combinations of goods is represented by its points, A, B, C, D. but these four are by

No means the only combinations among which we are indifference. Another batch, such as 1 unit of good and 4 unit of clothing might be ranked as equal to 4 unit of food and 1 unit of clothing and B or C. the curved contour of figure linking up the four points, is an indifference curve. The points on the curve represent consumption bundles among which the consumer in indifferent all are equally desirable. When a consumer has fixed money income all of which she spends is conformed to market price of two goods, she is constrained to move along a straight line called the budget line or budget constraint. The consumer will move along this budget line until reaching the highest attainable indifference curve. At this point the budget line will touch, but not cross an indifference curve, Hence equilibrium is at the point of tangency, where the slope of the budget line exactly equals the slope of the indifference curve.
The indifference curve is just one of a whole family of such curves. The curves labeled  are three other indifference curves. We refer to  as being as a higher then . By a person preference, we can draw conclusions about the shape of indifference curve.

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