Indifference Curve

The basic tool of Hicks - Allen ordinal analysis of demand is the indifference curve that represents all those combinations of goods that give same satisfaction to the consumer. In other words, all combinations of the goods lying on a consumer’s indifference curve are equally preferred by him. The indifference curve is also called Iso-utility curve. Indifference schedule is the tabular statement that shows the different combinations of two commodities yielding the same level of satisfaction.


Properties of Indifference Curve

1) ICs of two goods are negatively sloped

2) Indifference curves can never intersect

3) Indifference curves of two goods are convex to the origin

4) The higher the IC , the higher the utility (U3 > U2 > U1).


Price Line or Budget Line- price line shows all those combinations of two goods which the consumer can buy by spending his given money income on the two goods at their given prices. Suppose, a consumer has Rs.50 to spend on goods X and Y. Let the prices of goods X and Y be Rs.10 per unit and Rs. 5 per unit respectively. If he spends his whole income (Rs.50) on X, he would buy 5 units of X, and if he spends his

whole income on Y, he would buy 10 units of Y. If a straight line joining 5 units of X and 10 units of Y is drawn, we get what is called the price line or budget line.





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