Question

State and explain the characteristics of indifference curve.

Answer 1

An indifference curve shows combinations of two goods that provide the same satisfaction. Its main characteristics are:

1. Downward sloping: To keep satisfaction unchanged, more of one good must be accompanied by less of the other.
2. Convex to the origin: MRS diminishes as the consumer substitutes one good for the other.
3. Higher curves indicate greater satisfaction: Under monotonic preferences, bundles on a higher curve are preferred to bundles on a lower curve.
4. Indifference curves do not intersect: An intersection would imply that one bundle gives two different levels of satisfaction, which is inconsistent.
5. They do not touch either axis in the usual two-good analysis, since this would mean consuming none of one of the two goods.