What role does indifference curve play in consumer analysis?

What role does indifference curve play in consumer analysis?

Indifference curve is the graphical representation of bundles of goods which provide same utility. The slope of indifference curve is the marginal rate of substitution (MRS), which shows that to consume one more unit of good, there is opportunity cost of the foregone good.

How do indifference curves represent the consumer preferences?

This theory of the consumer has given us many tools. Indifference curves map or graphically represent consumer preferences. The slope of an indifference curve, the MRS, reflects the value placed on the additional unit of a good in terms of the other goods the consumer would be willing to give up.

What is indifference curve and its importance?

Definition: 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.

What is indifference map in economics?

Definition: The Indifference Map is the graphical representation of two or more indifference curves showing the several combinations of different quantities of commodities, which consumer consumes, given his income and the market price of goods and services.

What are the basic assumptions of consumer behavior?

Assumptions concerning consumer behaviour: Consumers have limited resources ie. There needs and wants are greater than their income. Consumers seek to get maximum utility/satisfaction when buying goods. Consumers will act rationally ie.

What are the theories of consumer behavior?

Consumer theory is the study of how people decide to spend their money based on their individual preferences and budget constraints. A branch of microeconomics, consumer theory shows how individuals make choices, subject to how much income they have available to spend and the prices of goods and services.

What are the three basic assumptions about preferences?

The three fundamental assumptions about preferences are: Completeness: We say preferences are completewhen a consumer can always say one of the following about two bundles: A is preferred to B, B is preferred to A or A is equally good as B.

What are some examples of consumer preferences and values?

The following are common types of customer preference.

• Convenience. Preferring things that are easy such as a settling for a nearby restaurant.
• Effort. The satisfaction that results from effort.
• User Interfaces.
• Communication & Information.
• Stability vs Variety.
• Risk.
• Values.
• Sensory.

What are the main features of indifference curve?

The four properties of indifference curves are: (1) indifference curves can never cross, (2) the farther out an indifference curve lies, the higher the utility it indicates, (3) indifference curves always slope downwards, and (4) indifference curves are convex.

What is the concept of indifference curve?

An indifference curve shows a combination of two goods that give a consumer equal satisfaction and utility thereby making the consumer indifferent. Along the curve, the consumer has an equal preference for the combinations of goods shown—i.e. is indifferent about any combination of goods on the curve.

What is indifference map with example?

An Indifference Map is a set of Indifference Curves. It depicts the complete picture of a consumer’s preferences. The following diagram showing an indifference map consisting of three curves: We know that a consumer is indifferent among the combinations lying on the same indifference curve.

What is an indifference map explain with diagram?

Indifference map refers to a set of indifference curves. An indifference curve which is to the right and above another shows a higher level of satisfaction to the consumer. Here, IC3 shows higher level of satisfaction than IC2. Thus, the indifference curve relates to a higher level of income of the consumer.

Which is the best description of an indifference map?

Indifference Map. An Indifference Map is a set of Indifference Curves. It depicts the complete picture of a consumer’s preferences. The following diagram showing an indifference map consisting of three curves: We know that a consumer is indifferent among the combinations lying on the same indifference curve.

Why do consumers prefer the higher indifference curves?

We know that a consumer is indifferent among the combinations lying on the same indifference curve. However, it is important to note that he prefers the combinations on the higher indifference curves to those on the lower ones. This is because a higher indifference curve implies a higher level of satisfaction.

What do indifference curves mean in a diagram?

The Indifference Map refers to a set of Indifference Curves that reflects an understanding and gives an entire view of a consumer’s choices. The below diagram shows an indifference map with three indifference curves.

How is the indifference curve related to the budget line?

A budget line shows combinations of two goods a consumer is able to consume, given a budget constraint. An indifference curve shows combinations of two goods that yield equal satisfaction. To maximize utility, a consumer chooses a combination of two goods at which an indifference curve is tangent to the budget line.