INDIFFERENCE CURVE

          INDIFFERENCE CURVE

Indifference curve is a  curve that shows the combination of goods which gives the same level of satisfaction to the consumers so that an individual is indifferent .

                     In other words , all combinations of goods which lie  on a consumer's indifference curve are equally desirable  to or equally preferable by consumer.
                     The Technique of indifference curve  was first of all invented by the  classical economist EDGEWORTH  but he used it only to show the possibility of exchange between two persons and not to explain consumer demand.
                     Later two economists J.R.Hicks and R.G.D. Allen in their now well known paper,
"A Reconsideration  of the theory  of Value".
                     They severallly criticised marshall's cardinal utility  analysis based on cardinal measurement of utility and put forward the IC  approach idea based on the idea of ordinal utility to explain consumer's behaviour . Before  Hicks and Allen ,Parado  the indifference curve technique to extensive use.
                    The theory of indifference curve is based on ordinal utility which means scale of preference and marginal rate of substitution .

                   The  ordinal utility means  the utility obtained from goods cannot be compared through numbers ,the scale of preference as being greater or equal or less to the level of satisfaction.

                   The scale of preference is the qualitative expression of consumers desire for goods . It shows the way in which an individual consumer to spend his money income on various commodity.
                  According to HICKS, It is the locus of the point representing the part of quantities between which the individual is indifferent  and so, is termed as IC Curve .
                       in 1939,Hicks represented the IC theory of consumer's demand in his book "VALUE AND CAPITAL"

   ASSUMPTIONS
1.The consumer has an IC map showing his scale of preference.
2. The consumer has limited money income .
3. Goods should be homogeneous and countable .
4. The consumer knows the price of all goods 
5. The consumer aims at maximising his satisfaction .
6. The consumer should be rational .
7. There should be consistency of choice .
8. Based on ordinal utility measurement .
9. There should be a perfect competition .
10. Diminishing marginal rate of substitution .
11. More commodity is better to study .
12. Preference of consumer should be transitive .

INDIFFERENCE CURVE REPRESENTATION
TABULAR REPRESENTATION
Indifference set is the  tabular representation of Indifference curve which shows all those combination  of goods which gives same level  of  satisfaction to the consumer.
EXAMPLE :-
Quantity/Item            Apple                    Mango
A                                30                             06
B                                24                             07
C                                20                             08
D                               14                              10
E                               10                              13
F                                08                              15
G                               06                              20
GRAPHICAL REPRESENTATION
Indifference curve is the   graphical representation of  In difference set which shows all those combination of goods  which gives the same level of satisfaction to the consumer

EXPLAINATION:-

In this figure, the IC curve is representing two commodities mango and apple on x and y axis respectively. this shows the level of satisfaction obtained by the consumer in different combination.

 Marginal rate of substitution 

The rate at which consumer is ready to exchanfe good X and Y is known as Marginal Rate of Substitution (MRS),i.e, the rate at which one good must be added when the other is taken away or substituted  in order to keep the individual indifferent . 

           MRS= %CHANGE IN GOOD X                                                   BY 

                       % CHANGE IN GOOD Y

*MRS Decline as the graph moves  downward to the right along the IC .

*Indifference curve with diminishing MRS are convex in shape . 

*Convexity illustrates that people like variety.

CONDITIONS 

There are two  condition which  consumer's equilibrium  under IC theory must  meet.

1. A given priceline should be tangent  to an IC  or MRS  of good x  for good y (MRSxy)must be equal to the  price ratio of two goods 

                MRSxy  = Px /Py.

2. The MRS must be diminishing at the point of equilibrium .Unless the MRS continuously  falls , the equilibrium cannot be established.