Micro Economics--Indifference Curve Theory .-1

IntroductionProf.Hicks

“value and capital”1939 & “A revision of demand Theory in 1956.

It explains about purchase behavior of the consumers ,when they purchase 2 goods at a time.

Consumer’s preference is ranked, and represented in a graph, it is called as indifference curve

It measures utility ordinally.

An indifference curve is a graph showing combination of two goods that give the consumer equal satisfaction and utility.

It refers to a set of indifference curve

Consumers are rational Only 2 goods, x,y Consumer have complete market information Price of 2 goods are given Consumer’s taste,Income,habits remains

same IC curve negatively sloping. Always convex to the origin. Preferences are transitive. Two goods are divisible.

It is the rate of exchange of good x and y. How much of y is sacrificed to get extra

units of y is termed as MRS. change in Y MRS=------------------------------------ Change in X

To solve the problem of Exchange

To know the effect of subsidy To explain rationing of goods To explain supply of Labour To know balance between Income and

Leisure To calculate the effect of income tax vs

excise duty.

Consumer is not rational in all times Combination of goods are not based on

any principle Two goods model is unrealistic Unrealistic assumptions All commodities are not divisible It fails to explain consumer behavior for

multiple goods, as well as in risk and uncertainty.

Despite these criticisms, The indifference curve technique is still regarded superior to marshallian cardinal approach.

--------------------------- Thank you.