Class 12 Micro Economics Chapter 3-Indifference Curve And Consumer Equilibrium notes in English medium

Indifference Curve and Consumer Equilibrium

In this post of Economics Online Class, we will learn about Indifference Curve and Consumer Equilibrium.

Indifference Curve

An indifference curve is a graphical representation of an indifference group. It denotes all those combinations of two goods (apples and oranges) between which the consumer is neutral. Each combination provides an equal amount of satisfaction.

If we present the indifference group as a diagram , we get an indifference curve . On presenting the diagram in the form of a diagram, we get 4 points ABCD . Oranges are shown on OY axis out of OX axis. The consumer gets equal satisfaction on these four points. So he is neutral towards these four points .

Indifference Map

The indifference map represents a set of 2 or more indifference curves. An elevated indifference curve IC 2 indicates a higher level of satisfaction.

Properties of Indifference Curve

The main features of an indifference curve (IC) are:

1- The neutrality curve (indifference curve) is of negative slope or its slope is downwards –

An indifference curve slopes down from left to right . It shows that if one thing is taken more, the other will be taken less . Hence total satisfaction remains the same at any point in time.

2- The indifference curve is convex towards the origin –

The neutrality curve is usually the rate of elevation towards the origin. This is because of the phenomenon of marginal substitution rate (MRS).

3- Two indifference curves never touch or intersect each other –

Each neutrality curve represents different levels of satisfaction . So it is not possible for them to cut each other.

4- Higher indifference curve shows higher level of satisfaction –

A higher indifference curve (IC₂) in the indifference map than a lower indifference curve (IC₁) represents those coincidences that lead to a higher level of satisfaction.

5- Indifference curve neither touches the X axis nor the Y axis –

Neutrality curve assumes that a consumer buys a combination of different quantities of two goods. Hence neutrality curve neither touches the X axis nor the Y axis.

Consumer Equilibrium

The consumer is in a state of equilibrium in which he spends his fixed income on various goods in such a way that his level of satisfaction is maximum. The consumer will be in equilibrium when his indifference curve and budget line touch each other.

In other words , we can say that consumer equilibrium occurs when the slope of the price line (AD) is equal to the slope of the neutrality curve (IC) and it touches it.

We can explain this with the help of the following diagram –

The diagram shows the first object i.e. apples on the OX axis and the second object i.e. oranges on the OY axis. AD is the consumer’s budget line and IC₁ & IC₂ are the indifference curves. IC₁ and budget line are touch each other at point E. Hence consumer equilibrium is at point E. Conversely, if the consumer chooses any other point such as X (within the budget line limit) , it means that he is not making full use of his resources. If the consumer chooses a point Z on a high neutral energy curve IC₂ , he  The point will also not be able to achieve equilibrium. Because that is out of his budget line.

If you have any doubt or question in the above then you can comment us.

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