What are the different types of indifference curves?
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 perfect substitutes and perfect complement?
The defining criterion for perfect substitutes is that marginal rate of substitution (MRS) is constant. The example of complementary goods we saw before was right and left shoes. One has no use for one without the other. This fact causes the indifference curves to become L-shaped (see Figure 3.5).
When indifference curve is L shaped then two goods will be?
An L shaped indifference curve represents that two goods are perfect complements of each other.
How do you find the MRS of perfect substitutes?
Since MRSx.y = a/b, the value of 1 marginal unit of good X to the consumer is equal to a/b unit of good Y, or, the value of ‘b’ unit of good X, on the margin, is equal to ‘a’ unit of good y.
What is a convex indifference curve?
Convexity of indifference curves implies that the marginal rate of substitution of X for Y falls as more of X is substituted for Y. Thus, indifference curves are convex to the origin when principle of diminishing marginal rate of substitution holds good and which is generally the case.
Why are indifference curves perfect substitutes?
ADVERTISEMENTS: The shape of an indifference curve is convex to the origin and this is based on the principle of diminishing marginal rate of substitution. This principle makes it possible to substitute one good for another in order to achieve any particular level of satisfaction or utility.
Why are indifference curves convex?
Indifference curves are convex to the origin because the marginal utility of each product consumed decreases with subsequent consumption. This convex relationship is based upon an idea dubbed the marginal rate of substitution, which is represented by the formula (Z = change in X / change in Y).
What is a linear indifference curve?
An indifference curve is a line showing all the combinations of two goods which give a consumer equal utility. In other words, the consumer would be indifferent to these different combinations. Example of choice of goods which give consumers the same utility.
How do you calculate Mrs indifference curve?
Given any combination (t, y) of free time and grade, Alexei’s marginal rate of substitution (MRS) (that is, his willingness to trade grade points for an extra hour of free time) is given by the slope of the indifference curve U(t, y)=c through that point.
Why does indifference curve do not intersect?
The indifference curves cannot intersect each other. It is because at the point of tangency, the higher curve will give as much as of the two commodities as is given by the lower indifference curve. This is absurd and impossible.