Indifference Curve, Assignment Help, Homework Help

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Indifference Curve

In simple terms, Indifference Curve can be defined as a line that represents all the possible combinations of two goods between which an individual is indifferent. The curve presents various combinations of two goods which give same level of satisfaction to the consumer.

At each point on the curve, the consumer is not required to make any choice for one over the other i.e. all the combinations are equally favored. In the figure above the consumer will get maximum satisfaction from any combination of products along the curve IC3.

Indifference Curve Assignment Help

7.1 Marginal Rate of Substitution

Marginal Rate of Substitution Assignment Help

In order to be on the same Indifference Curve, the consumer has to sacrifice one good for another by just equal quantity which keeps him/her on the same level of satisfaction. The marginal rate of substitution is the rate at which the consumer is ready to substitute one good for another so as to remain on the same level of satisfaction.

Suppose there are two goods X and Y and the consumer is willing to substitute X for Y.

So, marginal rate of substitution of x for y = Δy/Δx

MRS xy = Δy/Δx

7.2 Consumer’s Equilibrium

A consumer is said to be in equilibrium at the point where he gets maximum utility with respect to his budget constraints. The point where the indifference curve and budget line are tangent to each other is recognized as the equilibrium point at which consumer gets maximum satisfaction from the combination of two goods. Also, it is the highest indifference curve consumer can reach within his available budget.

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