Indifference Curve Analysis, Definition & Assumptions

Mon, 09/19/2011 - 12:44 -- Umar Farooq

Definition of Indifference Curve

Indifference curve definition according to Hics-Allen indifference curve means all those combinations of goods that give equal satisfaction to the consumer so he will be indifferent between them and it will not matter to him which one he gets. Or In other words, all the combinations lying on a consumer’s indifference curve are equally desirable or preferable to him.

Theory of Consumer Choice, Consumer Preference Theory

Another useful technique for considering how consumers choose between alternative satisfaction is indifference curve analysis.  For this technique we build a pattern of indifference curves, each recording a chain of choices between alternatives which give equal satisfaction.

Indifference curve adopted the concept of ordinal utility instead of cardinal utility.  It implies that the consumer is capable of simply comparing different levels of satisfaction.  Thus the basis of indifference curve approach is the preference – indifference hypothesis.  According to it when a consumer is presented with a number of various combinations of goods, he can order or rank them in scale of preferences. Indifference curve approach, as presented by Hicks-Allen is the basic tool of ordinal analysis of demand.

Assumptions of indifference Curve Analysis

  1. Ordinal measurement of utility
  2. Consistency in consumer behavior
  3. Transitivity
  4. Rationality
  5. Two commodities model
  6. Divisibility of goods
  7. Weak Ordering 

Draw Indifference Curve

It is the combination of two comodities, which give equal satisfaction of consumer. Below we will formulate the curve with the help of Good X and Good Y.

Indifference Curve Schedule

It shows various combinations of two goods which yield a consumer the same satisfaction, thus he is indifferent in regard to choice among the combination.

Good X           1          2          3          4          5

Good Y           12        8          5          3          2

Indifference Curve

plotting these combinations below in a diagram we have the indifference curve below. This diagram on X-axis show Good X and on Y-Axis Good Y.

Indifference Map

Indifference map means a set of indifference curves drawn from the original curve shows a higher level of satisfaction.  

Properties of Indifference Curve

Each point in the diagram stands for a basket of meat and ghee (cooking oil) A, B, C, D are all baskets among which a certain consumer is indifferent. All give equal utility. These points and all others on a smooth curve connecting them constitute an indifference set. An indifference curve is a graphical representation of an indifferent set. Indifference curve properties are:  Read More

Uses of Indifference Curve

Suppose you have a budget of Rs. 10 per week. You can spend your money on potatoes at Rs. 2 per Kg or tomatoes at Rs. 1 per Kg or on some combination of the two. the consumption opportunity line or budget line shows all possible combinations.  Read More