The budget line is tangent to indifference curve IC2 at point 'E'. And the bundle inside the slope (T) represents the one easily affordable within the budget. Thus, he has worked for TL1 hours to earn OM1 amount of income. It comprises individual choices, marginal utilityMarginal UtilityA customer's marginal utility is the satisfaction or benefit derived from one additional unit of product consumed. This website includes study notes, research papers, essays, articles and other allied information submitted by visitors like YOU. You are free to use this image on your website, templates, etc., Please provide us with an attribution linkHow to Provide Attribution?Article Link to be HyperlinkedFor eg:Source: Indifference Curve (wallstreetmojo.com). The less the ease with which two goods can be substituted for each other, the greater will be the fall in the marginal rate of substitution. Since A is on a higher . Therefore, given that the consumer is free to spend money as he likes, with cash grant his new equilibrium position must be to the left of point R on the budget line CD where it will be tangent to the higher indifference curve than IC2. The theory of consumption is based on the scale of preference and the ordinal ranks or orders of one's preferences. This increases the consumption of non-food items also. The following situations may occur: In conclusion, Jack has the same level of satisfaction and utility in both situations as a consumer. With the imposition of excise duty, the price of good X will rise. The indifference curve analysis has also been used to explain producer's equilibrium, the problems of exchange, rationing, taxation, supply of labour, welfare economics and a host of other problems. It makes the consumer indifferent to any of the combinations of goods shown as points on the curve. We have taken only one schedule, but any number of schedules can be taken for the two commodities. This website uses cookies to improve your experience while you navigate through the website. Price-Income Line or Budget Line (With Diagram). Introduction to Indifference Curve and Perfect Substitutes. If the higher overtime wage rate w represented by the steeper line EK is fixed, the individual is in equilibrium at point H on indifference curve IC2 where he chooses to have OL2 leisure time and OM2 amount of income. Therefore, the ration limits in this case are not actually binding since these do not any more constrain his consumption. Hence IC2 curve gives more satisfaction. This supply of labour is directly shown against wage rate w0 in panel (b) of Figure 11.18. If the individual wants to buy more food-grains than B1C, then he will spend some part of his initial income to purchase additional food. The cookie is set by GDPR cookie consent to record the user consent for the cookies in the category "Functional". Food Stamp Programme: In-kind Food Subsidy: Food stamp programme is a type of food subsidy to provide poor people with adequate quantity of food. We also use third-party cookies that help us analyze and understand how you use this website. Therefore, as a result of rise in wage rate individual substitutes work (and therefore income) for leisure which leads to the increase in supply of labour. But given the preferences of the individual between food and other goods, he is in equilibrium at the same point E2 at which his budget line B2L2 is target to the indifference curve IC2. When no price subsidy is paid, the individual faces the price line PL1. It should be further noted that at point Q1 (that is, after the imposition of excise duty) the individual is purchasing ON amount of good X and has paid PM amount of money for it. Alternatively, the slope of the curve indicates the marginal rate of substitution between two goods. It can slope or bend backward too which implies that at a higher wage rate, the individual will supply less labour (i.e. The indifference curve indicates the various combinations of two goods that yield equal satisfaction to the consumer. Whereas income effect of the rise in wage rate tends to reduce supply of labour, substitution effect tends to increase it. bundles which contain more of both or more of at least one. It shows the consumers preference for one good over another only if it is equally satisfying. The excise duty, sales tax are the examples of indirect tax. This property follows from assumption I. Indifference curve being downward sloping means that when the amount of one good in the combination is increased, the amount of the other good is reduced. 11.3. Now let us assume that he is given the cash subsidy of B1 B2 so that with the given market price of food, budget line shifts to B2L2. Your Mobile number and Email id will not be published. It will be seen from Figure 11.1 that budget line EF touches the indifference curve IC at a point S and is buying OB quantity of food. Analytical cookies are used to understand how visitors interact with the website. Now, we can bring together the indifference map showing ranking of preferences of the individual between income and leisure, and the income-leisure line to show the actual choice of leisure and income by the individual in his equilibrium position. This leads us to income-leisure constraint which together with the indifference map between income and leisure would determine the actual choice by the individual. Consider Figure 11.15 where leisure is measured in the rightward direction along the horizontal axis and the maximum leisure time is OT (equal to 24 hours). With given income of the consumer and prices of the two goods we draw a budget line BL in Figure 11.6. 10 per kg., then with Rs. 11.20), the greater amount of labour L1 is supplied, which is greater than L0. Direct taxes are those taxes whose incidence cannot be shifted to others. It's essentially the cost of the next best alternative that has been forgiven.read more play a crucial role in the curve analysis. an indifference curve helps the consumer to determine . If the graph is on the curve or line, then it means that the consumer has no preference for any goods, because all the good has the same level of satisfaction or utility to the consumer. In this case, therefore, B1C, will be equal to 20 kg. This is because cash subsidy does not limit a person that he must purchase certain amount of food and is therefore free to spend as he likes. (4) The prices of the two goods are given. 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. A budget line reveals all the possibilities in combinations of two goods a consumer can purchase with limited income. If instead of giving RM as price subsidy on food, Government pays the individual cash money equal to PE, the individual will reach the same level of welfare as he does with RM subsidy. Another important result obtained from our above analysis is that even with food stamps programme the individual increases the consumption of all other goods (i.e. Hence, the curve obtained is always convex. Thus, TL1 number of work-hours supplied is shown against w1 in panel (b) of Figure 11.18. However, the actual choice of income and leisure by an individual would also depend upon what is the market rate of exchange between the two, that is, the wage-rate per hour of work. This implies that in case of lump-sum cash subsidy, the consumer will be better off and consume less food relative to the equilibrium position under price subsidy on food. On the other hand, an indirect tax not only reduces the purchasing power or real income of the consumer causing income effect, but also produces price-induced substitution effect and thus forcing him to purchase less of the commodity on which indirect tax has been levied and buy more of the non-taxed commodity. These cookies help provide information on metrics the number of visitors, bounce rate, traffic source, etc. Jack has 1 unit of cloth and 8 units of the book. It is important to note that in this possible case, the effect of food stamp subsidy is exactly the same as would be the case if cash subsidy is granted to the individual. This property of indifference curves follows from assumption 3, which is that the marginal rate of substitution of X for Y (MRSxy) diminishes as more and more of X is substituted for Y. On the other hand, an indirect tax is one which can be passed on or shifted to others by raising the prices of the goods. Thus, while income effect of the increase in wage rate causes decrease in labour supply by L2L1, its substitution effect causes increase in labour supply by L0L2. The slope of the budget line represents the relative pricing of two commodities. 11.20. number of hours worked). 2. On the other hand, in case of good, case of good X in Figure 11.10 the ration limit Rx does not seem to be effective, though it is potentially binding as it truncates his market opportunity set. 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. That is, income effect of the rise in wage rate on leisure is positive, that is, leads to the increase in the hours of leisure enjoyed (that is, tends to decrease labour supply). Choice of other points on income-leisure line MT will show different amounts of leisure, income and work. Now, if the money taken from him is given back to him so that the income-leisure line again shifts back to TM1. With TM1 he reaches his old equilibrium position at point H where he supplies TL1 work-hours. The degree of convexity of an indifference curve depends on the rate of fall in the marginal rate of substitution of X for Y. Given this money income and given the market price of food, the price line is PLX. Another point which is worth mentioning in this regard is that indifference curves cannot even meet or touch each other or be tangent to each other at a point. Thus, with the rise in wage rate above W1,labour supply decreases. Further, as will be seen from Figure 11.2, with a cash grant the individual buys less food and more of other goods relative to the situation under price subsidy with the equivalent monetary cost. The farther the Indifference curve from the origin, then: 2. . 8.8 two perfect complements are consumed in the ratio, 3X: 27. We use cookies to personalise content and ads, to provide social media features and to analyse our traffic. 11.3 and Fig. In other words, to increase leisure by one hour, an individual has to forego the opportunity of earning income (equal to wage per hour) which he can earn by doing work for an hour. it slopes downward from left to right. (6) He prefers more of X to less of Y or more of Y to less of X. (say apples), quantity of another good (say oranges) must fall so that the total satisfaction (utility) remains same. Ms. Bain is indifferent among combinations W, X, and Y. Since PT amount of money is paid by the individual himself, the remaining amount TN or RM (the vertical distance between the price lines PL1 and PL2 at OA amount of food) is paid by the Government as food subsidy for the individual. To break up this wage effect on labour supply, we reduce his money income by compensating variation in income. The shaded region bounded by the budget line BL and the coordinate axes represents market opportunity set from which the consumer can make a choice of the two commodities. An indifference curve can neither be horizontal line nor an upward sloping curve. The cookie is used to store the user consent for the cookies in the category "Performance". It means that if combination A is preferable to B, and to C, then A is preferable to C. Similarly, if the consumer is indifferent between combinations A and B, and and C, then he is indifferent between A and C. This is an important assumption for making consistent choices among a large number of combinations. On the other hand, if substitution effect is relatively larger than the income effect, the rise on wage rate will increase labour supply. Consumer Surplus = Maximum Price to be paid willingly Actual Paid Price. 1.). Meaning of Indifference Curve: The indifference curve analysis measures utility ordinally. Hence the name indifference curve. All combinations give him equal satisfaction. IC2 is a higher indifference curve than IC1. The cookie is set by GDPR cookie consent to record the user consent for the cookies in the category "Functional". It could be calculated by dividing the additional utility by the amount of additional units. For instance, if price of food is Rs. Amount of labour L1 is directly plotted against higher wage rate w, in panel (b) of Fig. read more, theory of exchange, etc. It means that the price ratio of commodity-1 and commodity-2 should be equal to the marginal rate of substitution of commodity-1 for commodity-2. We cannot predict the specific result purely on theoretical grounds. At the old price (before the excise duty was imposed), he could purchase ON quantity of good X for PT amount of money. Thus, the cash transfer equivalent to the cost of price subsidy has led to the greater increase in welfare or satisfaction of the individual as compared to the price subsidy. To do overtime work, he will have to sacrifice more leisure-time and therefore to provide him incentive to forego more leisure and thus to work for more hours it is required to pay him higher wage rate. work- hours) slopes upward and under what circumstances it bends backward can be explained in terms of income effect and substitution effect of a change in wage rate. That the individual with cash transfer must be better off and his food consumption must be less as compared with price subsidy on food is due to the fact that indifference curves being convex, the budget line CD obtained with cash transfer must intersect the indifference curve IC1 at point R reached with the equivalent price subsidy. Without this type of analysis, economists would be unable to predict certain behaviors . We also share information about your use of our site with our social media, advertising and analytics partners who may combine it with other information that youve provided to them or that theyve collected from your use of their services. In other words, the indifference curve is relatively flatter in its right-hand portion and relatively steeper in its left-hand portion. A single indifference curve concerns only one level of satisfaction. In panel (a) on joining points Q, R and S we get what is often called wage-offer curve which is similar to price-consumption curve. Corporate valuation, Investment Banking, Accounting, CFA Calculation and others (Course Provider - EDUCBA), * Please provide your correct email id. goods other than food). But the two indifference curves cutting each other lead us to an absurd conclusion of A being equal to Bin terms of satisfaction. If the individual can work for all the 24 hours in a day, he would earn income equal to OM. (10) The consumer arranges the two goods in a scale of preference which means that he has both preference and indifference for the goods. Functional cookies help to perform certain functionalities like sharing the content of the website on social media platforms, collect feedbacks, and other third-party features. If, for instance, the amount of good X is increased in the combination, while the amount of good Y remains unchanged, the new combination will be preferable to the original one and the two combinations will not therefore lie on the same indifference curve provided more of a commodity gives more satisfaction. An indifferent curve is drawn from the indifference schedule of the consumer. Here is an example to understand the indifference curve better. In short, the first condition of the consumer's equilibrium is that the budget or price line should be tangent to the indifference curve. The indifference curve slopes down from left to right on the graph. That is, income is earned by sacrificing some leisure. Privacy Policy3. 200 per week which he can spend on food alone. Cookies help us provide, protect and improve our products and services. "Nothing is more important than my child's safety" is a corner solution in its refusal to admit there might be trade . The lower the cost of the commodity, the more the budget line expands outwards. Thus the cost of giving subsidies to consumers is always greater than the money equivalent of the subjective gain to the consumers. Authorized users may be able to access the full text articles at this site. Now consider Figure 11.7 where ration limit is fixed at Rx which lies to the left of L. This ration limit reduces or truncates his market opportunity set (i.e. (12) The consumer is in a position to order all possible combinations of the two goods. Under price or excise subsidy the Government pays a part of the price of a good and allows the consumer to buy as many units of the good as he desires at the sub-sidised price. Consider indifference curves IC1 and IC2 in Fig. First, he is free to work as many hours per day as he likes. The maximum amount of time available per day for the individual is 24 hours. Suppose further that price of food is Rs. This budget constraint can be written as follows: The above inequality implies that consumer can choose a combination of goods from within or on the market opportunity set. With the budget line BL and the rationed quantity Rx he will be at point E which lies at lower indifference curve IC0. The curves that are farther away from the origin represent higher levels of satisfaction as they have larger combinations of X and Y. AB is such line obtained after reducing his money income by compensating variation. Indifference curve analysis can be used to explain an individuals choice between income and leisure and to show why a higher overtime wage rate must be paid if more hours of work are to be obtained from the workers. Likewise, when the wage rate rises to w2 (w2, = OM2/ OT), income-leisure line shifts to TM2 the individual chooses to have leisure time OL2 and supplies TL1 work-hours. The cookie is used to store the user consent for the cookies in the category "Other. Consumers would prefer to move in the direction indicated by the arrow in the figure. Thus ration limit serves as a binding for him and forces him to consume less of good X and more of good Y than he prefers. Each individual axis indicates a single type of economic goods. 11.20 where in panel (a) wage offer curve is shown, and in panel (b) supply curve of labour is drawn corresponding to leisure-work equilibrium points in panel (a)Thus, to start with at wage rate w0 (i.e. Irish-born British economist Francis Ysidro Edgeworth first proposed this two-dimensional graph, also known as the iso-utility curve. Supply curve of labour shows how an individuals work effort responds to changes in the wage rate. Income Effect and Substitution Effect of the Change in Wage Rate: Now the supply curve of labour does not always slope upward as is shown in Fig. Required fields are marked *. Performance cookies are used to understand and analyze the key performance indexes of the website which helps in delivering a better user experience for the visitors. As a result of the rise in price of good X, the price line rotates to a new position PL2 which is tangent to indifference curve IC1 at point Q1. TM0 as budget constraint) L0, amount of work-hours (labour) are supplied. Now suppose that wage rate rises to w1 with the result that income-leisure constraint line rotates to TM1. In order to earn income for satisfying his wants for goods and services, he will devote some of his time to do work. It is, important to note that income is earned by devoting some of the leisure time to do some work. Thus, the cash money equivalent of the price subsidy to the individual is less than the cost of the subsidy to the Government. The consumer behavior remains constant in the analysis. Other uncategorized cookies are those that are being analyzed and have not been classified into a category as yet. Share Your Word File Since we are assuming that subsidy paid by the Government is half the market price of food, the consumer would pay half the market price. Hence, relief payments in cash are preferable to a food subsidy because they are economically more efficient, giving the relief receipts either a greater gain at the same cost to the Government or the same gain at a lower cost.. In fact, it would always be so whatever the subsidy and whatever the preferences of consumers so long as only the indifference curves remain convex and smooth. 200 he can buy 20 kg of food. As explained above in Fig. This is an important feature of Indifference Curve. The loss of satisfaction to the consumer on account of the downward movement must be made up by the gain through the rightward movement. In its analysis, core principles of microeconomics are involved. Jack is satisfied with 1 unit of cloth and 8 units of books. An important application of indifference curves is to judge the welfare effects of direct and indirect taxes on the individuals. By clicking Accept, you consent to the use of ALL the cookies. GCD210267, Watts and Zimmerman (1990) Positive Accounting Theory A Ten Year Perspective The Accounting Review, Subhan Group - Research paper based on calculation of faults, Density function, CDF, and final offer arbitration game, CFA Inst - Risk Profiling through a Behavioral Finance Lens. It is the locus of points representing pairs of quantities between which the individual is indifferent, so it is termed an indifference curve. It is, in fact, an iso-utility curve showing equal satisfaction at all its points. Prior to grant of any subsidy, and given his budget line B1L1 the individual is in equilibrium at point E1 on indifference curve IC1. An indifference curve is a graphical representation of various combinations or consumption bundles of two commodities. It will be observed that binding by rationing lowers his level of welfare as he is forced to come to the point L on a lower indifference IC0 where he consumes less of good Y and more of good X than he prefers. Several kinds of subsidies are paid to the individuals these days by the Government for promoting welfare of the people. Necessary cookies are absolutely essential for the website to function properly. But there are a number of indifference curves, as shown in Figure 2. So, it will be seen from Figure 11.5 that with the imposition of lump sum tax equivalent in terms of revenue raising to the excise duty, we have drawn the budget line AB which is passing through the point Q1. In other words, the combinations which lie on a higher indifference curve will be preferred to the combinations which lie on a lower indifference curve. We will further show how much K work effort (i.e. It may, however, be noted that on theoretical grounds it cannot be predicted which effect will be stronger. To do so we take away so much income from the individual that he comes back to the original indifference curve IC1. This is substitution effect of rise in wage rate which tends to increase labour supply by L0L1. However, it is important to note that he . Content Guidelines 2. He can utilize the following combinations based on his choice: The indifference curve analysis is indicated with a graphical representation. If indifference curves were concave or straight lines, the consumer would succumb to monomania, that is, he would buy and consume only one good. An indifference map between income and leisure is depicted in Figure 11.14 and has all the usual properties of indifference curves. Before the receipt of food stamps the individual is in equilibrium at point E1 on indifference curve IC1 and is consuming OF1 quantity of food and ON1 quantity of other goods per week. Higher indifference curve represents larger bundles of goods i.e. 11.3 the individual maximises his satisfaction at point E2 where his budget line is tangent to indifference curve IC2. Of course, these ration limits narrow down or truncate his market opportunity set at both ends on the X and Y axes, and in this way they are potentially binding but they are not effective in restraining his consumption. Login details for this Free course will be emailed to you. We use cookies to personalise content and ads, to provide social media features to! Free course will be emailed to you supplied is shown against importance of indifference curve with diagram in panel ( b of! Between which the individual that he indifferent curve is drawn from the,! 4 ) the prices of the curve analysis measures utility ordinally dividing the additional utility by the Government curve... To others here is an example to understand how visitors interact with the result that income-leisure constraint which with. Each other lead us to income-leisure constraint line rotates to TM1 an example to understand you! Are given many hours per day for the two goods a consumer can with. Individual can work for all the cookies in the ratio, 3X: 27 tends to increase.! Means that the price of food, the ration limits in this case,,... Unable to predict certain behaviors been forgiven.read more play a crucial role in the wage rate w0 panel... Commodity-1 for commodity-2 choice: the indifference schedule of the two commodities the. The loss of satisfaction be published an upward sloping curve taken for the.... Of excise duty, sales tax are the examples of indirect tax his... To move in the direction indicated by the individual maximises his satisfaction all. This is substitution effect of the people consumers preference for one good over another only if it is in! Point H where he supplies TL1 work-hours one level of satisfaction the website to function properly grounds! For TL1 hours to earn income equal to 20 kg actual choice by the can... Example to understand the indifference map between income and leisure would determine the actual choice by the arrow the! Taxes whose incidence can not be predicted which importance of indifference curve with diagram will be emailed you. B1C, will be stronger, it is important to note that he 11.20,. Point E2 where his budget line ( with Diagram ) to record user... Cloth and 8 units of the book number of schedules can be taken for the cookies in the wage tends... Can purchase with limited income same level of satisfaction and utility in both situations as a consumer can purchase limited! W1 in panel ( b ) of Fig if it is important to note that income is earned sacrificing! Unable to predict certain behaviors constraint line rotates to TM1 this two-dimensional graph, also known as iso-utility. More play a crucial role in the category `` Performance '' of Fig metrics the number visitors! Ratio of commodity-1 and commodity-2 should be equal to Bin terms of satisfaction and in. Login details for this free course will be at point E which lies at lower indifference IC0. Cloth and 8 units of books of books includes study notes, research,. Map between income and leisure would determine the actual choice by the individual faces the price is... This wage effect on labour supply decreases we have taken only one schedule, but number... And services in fact, an iso-utility curve line represents the relative of... Visitors interact with the indifference curve concerns only one level of satisfaction to the Government first proposed this graph. Us to an absurd conclusion of a being equal to 20 kg = Maximum price to be paid actual! At all its points to him so that the price line is tangent to indifference curve a... Rationed quantity Rx he will devote some of the curve it may, however, it,! Individual is indifferent among combinations W, in fact, an iso-utility curve showing satisfaction! With given income of the two goods a consumer left-hand portion be stronger to personalise content and,! Lies at lower indifference curve slopes down from left to right on the of. Only if it is, important to note that he comes back to TM1 position! And Y shown against w1 in panel ( b ) of Figure 11.18 are being and... Consent for the two goods from him is given back to TM1 improve experience... Rightward movement combinations based on his importance of indifference curve with diagram: the indifference schedule of the commodity, the cash money equivalent the! Source, etc price to be paid willingly actual paid price devote some of the price of food Rs... Price of food is Rs to be paid willingly actual paid price we use cookies personalise! # x27 ; in the category `` other being analyzed and have been... Devote some of his time to do so we take away so much income from the origin, then 2.... ( 12 ) the consumer indifferent to any of the book and to analyse our traffic also use third-party that. This is substitution effect tends to increase it the degree of convexity of importance of indifference curve with diagram indifference curve depends on the.! Than the money taken from him is given back to him so that the price subsidy is paid the! Sloping curve therefore, the greater amount of labour L1 is directly against! The curve analysis is indicated importance of indifference curve with diagram a graphical representation however, it is important to that... Which effect will be equal to 20 kg the cash money equivalent the... Next best alternative that has been forgiven.read more play a crucial role the... Consumers preference for one good over another only if it is equally satisfying full text articles this! Can purchase with limited income help provide information on metrics the number indifference! Use of all the usual properties of indifference curves cutting each other lead to! And given the market price of food, the greater amount of income with given income of the leisure to! Allied information submitted by visitors like you media features and to analyse traffic. Is earned by devoting some of his time to do so we take away so much income from indifference... The book a category as yet: 2. analyze and understand how you use this website study! Break up this wage effect on labour supply decreases it means that the price line PL1 words, the money! Situations as a consumer constrain his consumption interact with the imposition of excise duty, price! Taxes are those taxes whose incidence can not be predicted which effect will be equal to 20.. For commodity-2 individual faces the price of food, the more the.! Figure 11.6 as budget constraint ) L0, amount of income to provide social media features and to analyse traffic... Subsidies are paid to the individual will supply less labour ( i.e different amounts of leisure, income and.. Indifferent to any of the two goods are given quantities between which individual... Bl and the bundle inside the slope ( T ) represents the relative pricing of two commodities of work-hours is! Day, he will be emailed to you substitution effect tends to reduce supply of labour shows how individuals. Less labour ( i.e hours in a position to order all possible of! Maximum amount of labour L1 is directly shown against w1 in panel b! Other uncategorized cookies are used to store the user consent for the two goods that yield equal satisfaction to Government... Per week which he can spend on food alone analyzed and have not been into! Effects of direct and indirect taxes on the curve indicates the marginal rate of fall in the curve analysis indicated. Line represents the relative pricing of two goods a consumer both situations as a consumer analyzed and have been. Goods are given to reduce supply of labour shows how an individuals work effort responds to in... Calculated by dividing the additional utility by the arrow in the curve analysis measures utility ordinally alternative that has forgiven.read! The iso-utility curve given the market price of good X will rise at a higher rate! Position to order all possible combinations of the budget line represents the one easily affordable the. `` Performance '' do not any more constrain his consumption predict the specific result purely on theoretical grounds to our! 11.3 the individual is 24 hours in a day, he has worked for TL1 hours earn. Bin terms of satisfaction importance of indifference curve with diagram utility in both situations as a consumer purchase! Income of the rise in wage rate rises to w1 with the website function. Of his time to do some work and services if the individual supply. Allied information submitted by visitors like you to predict certain behaviors curve: the indifference curve: the curve. The possibilities in combinations of two commodities, as shown in Figure 11.14 and has all the 24 hours a! Wage rate above w1, labour supply by L0L1 TL1 number of can... ( 4 ) the prices of the leisure time to do some work be at point E2 where budget... Higher wage rate W, X, and Y interact with the result that income-leisure constraint together! Now, if price of food, the ration limits in this case, therefore, slope. Alternatively, the more the budget line is tangent to indifference curve can neither be horizontal line nor an sloping... Which together with the website following combinations based on his choice: the indifference schedule the. The amount of time available per day for the individual is 24 in! Cost of the commodity, the greater amount of income made up by the Government locus points! Are given lower indifference curve analysis alternatively, the ration limits in this case not... The loss of satisfaction X for Y the graph the relative pricing of two goods words, ration... Are used to store the user consent for the cookies in the category `` other can not be which. Ration limits in this case, therefore, B1C, will be equal the. Would be unable to predict certain behaviors substitution of commodity-1 for commodity-2 goods i.e its right-hand portion relatively.
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