What are the Properties of the Indifference Curves?

Author:: Sundaram Ponnusamy

Introduction

An indifference curve, since it represents level of satisfaction, is a subjective phenomenon. Each person has a unique set of indifference curves. Because satisfaction derived from a commodity differs from person to person. However, all indifference curves possess some common characteristics, which are known as properties of indifference curves. The following are those properties:

Indifference curves are infinite

Sample pictures of indifference curves may show you one or two indifference curves. However, the fact is that you can draw an infinite number of indifference curves between two indifference curves. A set of indifference curves is called an indifference map.

Indifference curve to the right represent higher level of satisfaction

The first property tells you that there are infinite indifference curves. All these indifference curves represent different levels of satisfaction. Higher indifference curve represents higher level of satisfaction. Let us look at the following figure 1.

what-are-the-properties-of-the-indifference-curves

When you move from point ‘a’ to ‘b’ (horizontal movement), you get more quantity of commodity x. The quantity of commodity x increases by ‘ab’ and the quantity of commodity y remains the same (OY₀). When you move from point ‘a’ to ‘c’ (vertical movement), you get more quantity of commodity y. the quantity of commodity y increases by ‘ac’ and the quantity of commodity x remains the same (OX₀). When you move from point ‘a’ to ‘d’ (diagonal movement), you get more quantity of both commodities (x and y). Hence, an indifference curve to the right always represents higher level of satisfaction. Because of this reason, the consumer always tries to move outward to maximize his level of satisfaction. This is known as “monotonicity” of preferences.

Indifference curves are not influenced by market or economic circumstances.

An indifference curve is purely a subjective phenomenon and it has nothing to do with the external economic forces.

Indifference curves do not intersect

Indifference curves cannot intersect each other. Suppose there are two indifference curves – ‘A’ and ‘B’. These two indifference curves represent two different levels of satisfaction. If these indifference curves intersect each other, the intersection will represent same level of satisfaction, which is impossible.

In figure 2, ‘A’ is the point where IC₁ and IC₂ intersect each other. Hence, at point A, both the curves yield same level of satisfaction. Now, can you tell which of these indifference curves give higher satisfaction? It is impossible to answer in this case for the reason that two indifference curves cannot yield same level of satisfaction.

Indifference curve has a negative slope

In order to remain on the same level of satisfaction (same indifference curve), the consumer must sacrifice one commodity for another. For this reason, an indifference curve always has a negative slope.

If a curve does not have a negative slope as shown in figure 3, it cannot be an indifference curve.

Indifference curves do not touch either axes

An indifference curve represents various combinations of two commodities. If an indifference curve touches horizontal axis or vertical axis, it implies that the customer prefers only one commodity because when it touches axes, one of the commodities becomes zero quantity. This violates the basic definition of an indifference curve. Hence, an indifference curve does not touch either horizontal axis or vertical axis.

Indifference curves need not be parallel.

Indifference curves are convex to the origin

Indifference curves are always convex to the origin. The convexity of the indifference curves indicates diminishing marginal rate of substitution (MRS).

Let us look at figure 5. When the consumer moves from A to B, he gives up ΔY₁of commodity Y to secure ΔX of commodity X. In this case, the MRS_xy = ΔY₁/ΔX. From the figure, it is clear that when he slides down from A to E, he gives up less and less of commodity Y for each additional unit of X. This forms a diminishing marginal rate of substitution.

Other Possibilities

Suppose that indifference curve is not convex to the origin. Other possibilities could be (a) concave to the origin and (b) straight line.

Figure 6(a) shows an indifference curve that is concave to the origin. In this case, ΔY₂ is greater than ΔY₁, ΔY₃ is greater than ΔY₂, and so on. Hence, you get increasing marginal rate of substitution of X for Y.

Figure 6(b) shows a straight line as an indifference curve. In this case, ΔY₁ = ΔY₂, ΔY₂ = ΔY₃, and so on. Hence, the marginal rate of substitution of X for Y remains constant. Both the cases violate the normal behavior of MRS that is diminishing.

Substitutes and complements

The shape of an indifference curve is helpful to understand whether commodities under consideration are substitutes or complements.

When two commodities are substitutes (interchangeable), their indifference curve will be a straight line. In this case, the marginal rate of substitution remains constant.

Complementary goods mean that you cannot use one commodity without another (for instance, car and fuel). The indifference curve for complementary goods is L-shaped.