# What is the slope of the indifference curve. 4.1 Calculating Elasticity 2022-11-01

What is the slope of the indifference curve Rating: 4,4/10 464 reviews

An indifference curve is a graph that represents the different combinations of two goods that give an individual the same level of satisfaction or utility. In other words, an indifference curve shows the different bundles of goods that a person is indifferent between, as they all provide the same level of utility or satisfaction to the individual.

The slope of an indifference curve, also known as the marginal rate of substitution, represents the rate at which an individual is willing to trade one good for another in order to maintain the same level of utility. In other words, it represents the amount of one good that an individual is willing to give up in exchange for a certain amount of the other good.

For example, consider an individual who has a preference for apples and bananas. The individual may be willing to give up two apples in exchange for one banana, in order to maintain the same level of satisfaction. In this case, the slope of the indifference curve would be -2, as the individual is willing to give up two units of the good on the x-axis (apples) in exchange for one unit of the good on the y-axis (bananas).

It is important to note that the slope of the indifference curve depends on the individual's preferences and the relative scarcity of the goods being traded. For example, if apples are relatively more scarce than bananas, the individual may be less willing to give up apples in exchange for bananas, and the slope of the indifference curve would be less steep. On the other hand, if apples are relatively more abundant, the individual may be more willing to give up apples in exchange for bananas, and the slope of the indifference curve would be steeper.

In summary, the slope of the indifference curve represents the rate at which an individual is willing to trade one good for another in order to maintain the same level of satisfaction or utility. It depends on the individual's preferences and the relative scarcity of the goods being traded.

## Indifference Curve Flashcards

Panel a shows the indifference curves and budget line for typical British prisoners and Panel b shows the indifference curves and budget line for typical French prisoners. Example Suppose that we went into a pastry for a snack. If Bob's indifference curves are bowed inward, then a. ADVERTISEMENTS: Therefore, commodity X becomes bad beyond the quantity X 1 and commodity Y becomes bad beyond the quantity Y 1. Did they abandon Netflix? This trade-off of creating a new painting instead of being with your crush is an example of the opportunity cost.

Next

## MRS in Economics: What It Is and the Formula for Calculating It

When indifference curves are bowed outward, the indifference curves must cross. But does not slope equal the change in the vertical axis divided by the change in the horizontal axis? Change in Cost of Production What would you do if suddenly, the price increases for the oil paint you use to make your paintings? Put the quantity of hamburgers purchased per week on the horizontal axis and the quantity of pizzas purchased per week on the vertical axis. When one indifference curve crosses the budget line in two places, however, there will be another, higher, attainable indifference curve sitting above it that touches the budget line at only one point of tangency. Also, MRS does not necessarily examine marginal utility because it treats the utility of both comparable goods equally though in actuality they may have varying utility. In general, any combination that lies above and to the right of an indifference curve is preferred to any point on the indifference curve. Similarly, for subsequent exchanges, the MRS is 2 and 1 respectively.

Next

## Movement along a Demand Curve and Shifts in Demand Curve

If total utility is to remain constant, an increase in the consumption of one good must be offset by a decrease in the consumption of the other good, so each indifference curve slopes downward to the right Because of the law of diminishing marginal rate of substitution, indifference curves bow in toward the origin. Consumer preferences can change substantially over time, making accurate indifference curves obsolete. Thus, if one of MU or TU is given, the other can be found out easily. The price of good X is twice as large as the price of good Y. If someone had 10 left ice skates and 10 right skates, but they wanted to purchase 100 right ice skates, the utility would still be the same related to the 10 left ice skates. Any point below and to the left of the indifference curve would produce a lower level of utility; any point above and to the right of the indifference curve would produce a higher level of utility. Budget line and indifference curve The budget line can define as, The locus of all combinations of two or more commodities, can be purchased with given money income and commodity prices.

Next

## Top 6 Properties of Indifference Curve (With Diagram)

As the quantity changes, the expected price of a product also changes — or the other way where if the price changes, the quantity will adjust. Point F has greater consumption of both books five to three and doughnuts 100 to 84 , so point F is clearly preferable to point B. According to diminishing marginal rate of substitution, the rate of substitution of commodity X for Y decreases more and more with each successive substitution of X for Y. Point S represents these most preferred quantities of the two commodities and is therefore the point of satiation or bliss. This is an important feature of an indifference curve. .

Next

## Indifference Curve Types & Examples

Thus they established the distinction between total utility. A substitute will have a positive cross-price elasticity, since if the % change in price is positive, the % change in quantity will be positive and vice-versa. An exchange of two days of skiing for one day of horseback riding would leave her at point T, and she would be as well off as she is at point S. So far in the text, we have described the level of utility that a person receives in numerical terms. To do this, consider how much of each good could be consumed if all available income was spent on that good. Both Diana and Sarah like jazz music and music by the Beatles.

Next

## Consumer’s Equilibrium: Interplay of Budget Line and Indifference Curve

Did I miss anything? Thus, for simplicity, firstly, we will examine the impact of the change of consumer income on the equilibrium. Indifference curves do not intersect Indifference curve indicates what you are willing to buy The budget line shows what you are able to buy We must therefore bring together the indifference curve and the budget line to find out what quantities of each good you are both willing and able to buy The budget line is tangent to an indifference curve. The MRS measures how eager a consumer is to trade one product for another. Extension in a demand curve is caused when the demand for a commodity rises due to fall in price. Hence, no two ICs can touch or intersect each other. To represent this, the perfect substitute indifference curve's slope is linear and constant.

Next

## Isoquant Curve in Economics Explained: Properties and Formula

This is represented by the point 6,0 on the graph. Higher indifference curve represents higher level of satisfaction Higher the indifference curves, higher will be the level of satisfaction. On the other hand, if consumers don't prove to have any reason to substitute bread for cake, a manufacturer may be handcuffed into producing a less-efficient good to meet market demand. How do we use it to calculate the elasticity at Point A? If indifference curve is concave and not convex to the origin, then it will not be the point of equilibrium. As long as the utility of one good remains the same, changing the quantity of another good will not affect the overall quantity demanded. If the marginal rate of substitution is increasing, the indifference curve will be concave, which means that a consumer would consume more of X for the increased consumption of Y and vice versa, but this is not common.

Next

## Introduction to the Budget Constraint

If Laura is indifferent between 2,6 and 6,2 , then Laura must a. Now look at point T in inferior to combinations on the indifference curve. Tracking the exchange of goods and services is one of the primary ways for economists to measure economic output. It is the maximum amount of one good a consumer is willing to give up to obtain an additional unit of another. Higher indifference curves represent a greater level of utility than lower ones. Often used in manufacturing, with capital and labor as the two factors, isoquants can show the optimal combination of inputs that will produce the maximum output at minimum cost. On the other hand, a point inside the line point K represents under-spending by the consumer.

Next

## Indifference Curves between: Goods, Bads and Neuters (with curve diagram)

Complementary and substitute goods are compared using cross price elasticity of demand on an indifference curve. This section presents an alternative approach to describing personal preferences, called indifference curve analysis, which avoids the need for using numbers to measure utility. Total and Marginal Utility Graph The saturation point corresponds to a level of consumption in which the total utility is maximum. For example, if Bob has already fished a lot in one week, he will be less willing to give up an hour of fishing for an hour of hunting than if he has only fished a little that week. So that the marginal utility of all goods consumed tends to equalize. Diana's indifference curve would be steeper than Sarah's indifference curve. He can easily afford the combinations S, Q, or T which lie on the higher ICs.

Next

## MCQs on Indifference Curve

His income is not enough to buy all the goods. Can be measured in ordinal numbers C. The own price elasticity of supply is the percentage change in quantity supplied divided by the percentage change in price. There are two reasons for this: 1. In zone 1, the portions of indifference curves between the two commodities have negative slope and, therefore, the two commodities are good in this zone. If the marginal rate of substitution of hamburgers for hot dogs is -2, then the individual would be willing to give up 2 hot dogs for every additional hamburger consumption. And, diminishing marginal rate of substitution states that the rate by which a person substitutes X for Y diminishes more and more with each successive substitution of X for Y.

Next