Definition: The Indifference Curve is the graphical representation of the combination of two goods, that gives equal satisfaction and utility to the consumer.
Properties of Indifference Curve
- Downward Sloping: An indifference curve slope downward, which means, that with the more consumption of one good the consumption of the other is to be reduced to maintain the utility.Here, the principle of the marginal rate of substitution (MRS) applies, which means the increased consumption of one commodity is to be set off by the reduced consumption of another commodity, so as to have the same level of satisfaction or utility. Thus, the indifference curve is negatively sloped.
- Convex to the Origin: The indifference curves are convex to the origin because of the diminishing marginal rate of substitution. The MRS diminishes because of the decline in the marginal utility, which means with more and more consumption of one commodity, the customer’s utility starts declining and he is not willing to consume it more at the cost of the other commodity.For example, let’s say there are two chocolates, dairy milk, and Nestle, with more and more consumption of dairy milk chocolates the utility continues to decline, and the customer will no more give up the Nestle chocolates to buy the dairy milk. Here, MRS shows the slope of the indifference curve.
- Higher the indifference curve, the higher is the level of satisfaction: The consumer derives more satisfaction from the combination of two goods on a higher indifference curve because more units of both the commodities are used that will surely be more satisfying than the lower quantity combinations.
- Cannot Intersect or be tangent to each other: The indifference curves can not intersect with each other, because if it does so, then the combinations of two commodities lying on two different curves will yield the same level of satisfaction which is not correct.
Thus, it is clear from the properties of the indifference curve that the customer realizes an equal satisfaction and the utility from the use of different combinations of two commodities.