indifference curve managerial economics
Post on 21-Jan-2015
821 Views
Preview:
DESCRIPTION
TRANSCRIPT
ANALYSIS OF CONSUMER BEHAVIOURORDINAL UTILITY APPROACH
Indifference curve analysis
0 Developed - Edge worth0 It was later preferred by J.R Hicks & R.J.D. Allen0 indifference curve approach is also known as ordinal
utility approach..0 consumer express their utility in terms of preference
not in term of quantity.
ASSUMPTION OF INDIFFERENCE CURVE
0 A consumer is assumed to buy any two goods in combinations.
0 A consumer can rank the alternative combinations and compare their level of satisfaction, and he prefers a combination providing a higher level of satisfaction.
0 Consumer is rational and his choices are transitive.
0 The consumer behavior is assumed to be constant, throughout the analysis.
INDIFFERENCE CURVE
Good X
Good Y
0
An indifference curve may be defined as the locus of various combination of two goods which yield the same total satisfaction to the consumer
INDIFFERENT SCHEDULE
For eg:0 The following table shows the indifference schedule of
combination of biscuits and cups of tea for a consumer.
combination Cups of Tea + Biscuits
ABCDEF
123456
++++++
503826211715
0 1 2 3 4 5 6 70
10
20
30
40
50
60
A
B
C
DE F
CUPS OF TEA
BIS
CUIT
S
X
Y
0
Graphical representation of indifference schedule…
INDIFFERENCE MAP0 A collection of
indifference curve is known as indifference map.
0A higher indifference curve indicates a higher level of satisfaction and vise versa.
Ic1Ic2
Ic3
Goo
d y
Y
Good x X0
Thanks….
top related