Presentation on Indifference Curve

A PowerPoint Presentation about Indifference Curve of Economics. Everyone should know about Indifference Curve. So watch it, download it and make your own from it.

1. Welcome Everyone 1

2. Subject: Principle of Economics 2 Topic: Indifference Curve

3. Presented By Group: H 13. Najmun Nahar 32. Md. Raihan Kabir 33. Abdullah Al- Helal 38. Shuvongkor Barman E-59, 4 th Semester Computer Science & Engineering Presented To Mr. Yeamin Masum Lecturer of Economics Dhaka International University 3

4. Simple History The concept of indifference curve was first developed  by British economist Francis Ysidro Edgeworth and was put into use by Italian economist Vilfredo Pareto during the early 20 th century. 4

5. Indifference Curve An indifference curve is a graph showing combination of two goods that give the consumer equal satisfaction and utility. Each point on an indifference curve indicates that a consumer is indifferent between the two and all points give him the same utility. 5 20 10 10 5 Combination Good A Good B A 10 10 B 20 5

6. Explanation of Indifference Curve The above diagram shows the U indifference curve showing bundles of goods A and B. To the consumer, bundle A and B are the same as both of them give him the equal satisfaction. In other words, point A gives as much utility as point B to the individual. The consumer will be satisfied at any point along the curve assuming that other things are constant. 6 20 10 10 5 Combination Good A Good B A 10 10 B 20 5

7. Assumptions of Indifference Curve Two Commodities: It is assumed that the consumer has fixed amount of money, all of which is to be spent only on two goods while prices of both goods are constant. Non Satiety: Satiety means full satisfaction. Indifference curve theory assume that the consumer has hot yet reached the point of satiety. It implies that the consumer still has the will to consume more of both the goods. 7 The indifference curve theory is based on some assumptions. These assumptions are -

8. Ordinal Utility: According to this theory, utility is a psychological phenomenon and thus it is unquantifiable. However, the theory assumes that a consumer can express utility in terms of rank. The consumer can do it by the basis of satisfaction yielded from each combination of goods. 8 Diminishing Marginal Rate of Substitution: Marginal rate of substitution may be defined as the amount of a commodity that a consumer is willing to trade off for another commodity, as long as the second commodity provides the same level of utility as the first one. Rational Consumer: A consumer always behaves in a rational manner, i.e. a consumer always aims to maximize his total satisfaction.

9. Properties of Indifference Curve There are 4 basic properties of an indifference curve. These are - 9 An indifference curve can neither be horizontal line nor an upward sloping curve. This is very important. When a consumer wants to have more of a commodity, he/she will have to give up some of the other commodity, given that the consumer remains on the same level of utility at constant income. As a result, the indifference curve slopes downward form left to right. 1. Indifference Curve Slope Downwards to Right:

10. This is an important property of indifference curves. They are convex to the origin (bowed inward). This is equivalent to saying that as the consumer substitutes commodity X for commodity Y, the marginal rate of substitution diminishes of X for Y along an indifference curve. In this figure (3.6) as the consumer moves from A to B to C to D, the willingness to substitute good X for good Y diminishes. This means that as the amount of good X is increased by equal amounts, that of good Y diminishes by smaller amounts. The marginal rate of substitution of X for Y is the quantity of Y good that the consumer is willing to give up to gain a marginal unit of good X. The slope of IC is negative. It is convex to the origin. 10 2. Indifference Curve is Convex to the Origin:

11. 3. Indifference Curve Cannot Intersect Each Other: 11 Each indifference curve is a representation of particular level of satisfaction. The level of satisfaction of the consumer for any given combination of two goods is same throughout the curve, that’s why indifference curve cannot intersect each other.

12. 12 4. Higher Indifference Curve Represents Higher level of Satisfaction: Higher the indifference curves, higher will be the level of satisfaction. This means any combination of two goods on the higher curve give higher level of satisfaction to the consumer then the lower one.

13. Thank you For Your Attention 13 Presentation Made By Shuvongkor Barman

14. Questions 14

15. Thank you Good Bye Take Care 15 Presentation Made By Shuvongkor Barman