DOWNWARD SLOPE AND CONVEX SHAPE OF INDIFFRENCE CURVE-IMPORTANT PROPERTIES OF INDIFFERENCE CURVE

 

 Learning Contents:                                                            

·      Why an indifference curve slopes downward or negatively sloped and convex to the point of origin?

Downward Slope of Indifference curve:

As discussed earlier, an indifference curve refers to all those combinations of two goods that give a consumer an equal level of satisfaction or utility. Since all the combinations offer the same amount of satisfaction, the consumer prefers them equally. Hence, it is named as indifference curve.

Each point on the indifference curve shows some combinations of two different goods a consumer can choose out from and give an equal amount of satisfaction. The slope of the indifference curve is downward from left to right; in other words, negatively sloped. This is because a consumer can get more of a type of good only at the sacrifice of another. If a consumer increases the consumption of a good (Say-X), he or she must sacrifice some units of another good (Say-Y) in order to enjoy the same level of satisfaction.

      Table 1: Different Combinations of Book and Pizza

Combinations	Book	Pizza	Marginal Rate of Substitution
A	1	12	----
B	2	6	6/1=6
C	3	4	2/1=2
D	4	3	1/1=1

Diagrammatic Presentation of Table 1 gives the following curve

 

Explanation

To understand why the slope of the indifference curve is downward we need to first understand the concept of MRS i.e. Marginal rate of substitution.

Marginal rate of substitution i.e. MRS or slope of IC indicates how much quantity of a good (Say-Y) a consumer is actually willing to sacrifice in order to gain one more unit of another good (Say-X) so that the same level of satisfaction could be maintained was earlier. How much amount of goods a consumer either give up or gain depends on  many factors such as likings, taste, preferences, income, price, culture, education, etc.

In other words, MRS is the ratio of Good-Y (goods sacrificed) to Good-X (goods gained) i.e. the amount of good Y given up per unit of X.

Note that MRS_XY measures the downward vertical distance (the amount of Y that the individual is willing to give up) per unit of horizontal distance (i.e., per additional unit of X required) to remain on the same indifference curve.

From the above table, we can observe that at combination B, MRS is 6 which mean a consumer sacrifices 6 units of Pizza to get one more unit of the book. Further at combination C, MRS is 2 which means the consumer now sacrifices 2 units of Pizza to get one more unit of the book. Further at combination D, MRS is 1 which means now consumer sacrifices 1 unit of Pizza to get one more unit of the book. Looking at the trends of sacrifice by the consumer we observe that MRS is declining.

Imp. Question to be answered at this point:

Why should the consumer be willing to sacrifice less and less amount of Pizza for every additional unit of Book?

The reason behind the downward sloping shape of the Indifference curve involves diminishing marginal utility—the basic assumption that as a person consumes more of a good, it becomes less valuable for the consumption of that good or the marginal utility from each additional unit becomes lower. In other words, having more of a good tends to ultimately fall in its marginal utility. Initially, consumer’s desire to sacrifice pizza was higher to gain an additional unit of the book. After a point, when this consumer had given up more of Pizza, his desire for having Pizza increased. As a result, the marginal utility of Pizza increased as more of their units were initially sacrificed to gain additional units of book and the marginal utility of books will be decreased i.e. consumer will desire to have less of books. Accordingly, MRS tends to fall but with a decreasing rate as we move down the IC. Falling IC also indicates that IC is convex to the point of origin.

QUESTIONS BASED ON THE INDIFFERENCE CURVE

Choose the Correct Answer

1. Marginal rate of substitution indicates:

a. slope of production possibility curve

b. slope of indifference curve

c. slope of budget line

d. slope of income line

2. Give the fact that MRS between goods X and Y is diminishing, IC is

a. convex to the origin

b. concave to the origin

c. straight line

d. none of the above.

3. A marginal rate of substitution of _____ means that, from the consumer’s point of view, 15 more units of Good Y is as good as 10 more units of Good X. 

a. 2/3

b. 1

c. 1.5

d. 15

4. Normally shaped indifference curves are bowed towards the origin of the graph. The reason for this shape is

a. the principle of diminishing marginal rate of relative price.

b. diminishing marginal rate of substitution.

c. that the marginal rate of substitution is constant along an indifference curve.

d. that indifference curves farther away from the origin represent higher levels of utility.

Answers:

1. b 2.a 3.c 4.b