TWO IMPORTANT PROPERTIES OF INDIFFERENCE CURVE

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Learning Contents:                                                            

·         Indifference curve does not cross or intersect each other.

·         When two commodities are consumed, IC neither touches X-axis nor Y-axis.


Why Indifference curve do not cross or intersect each other?

The indifference curves cannot intersect with each other, because if it does so, then the combinations of two commodities lying on two different curves will yield the same level of satisfaction which is not correct or will violate the transitivity and monotonicity assumption of consumer preferences.

                              Fig.1: Intersecting Indifference Curves

·      Figure 1 shows two indifference curves namely IC1 and IC2 intersects each other at point A.

·  Considering IC1 that has two combinations  namely A and B which offers a consumer an equal satisfaction as they lie on same indifference curve IC1 Hence, A=B.

·  Considering IC2 that has two combinations A and C which offers a consumer an equal satisfaction as they lie on same indifference curve IC1 Hence, A=C.

·    If A and C are equal(A=C), and A and B are equal(A=B), B and C should also be equal ( in terms of satisfaction level.) In reality, combination C represents more of both goods than combination B that lies on the other indifference curve. Hence, C>B. Hence, we can say that Intersections of two Indifference curves will violate the assumption of transitivity and monotonicity (more is better).

 

Indifference curves neither touches X-axis nor Y-axis

An indifference curve represents various combinations of two commodities. If an indifference curve touches the 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 the horizontal axis or vertical axis.                

                                          

                   Figure 2: An indifference curve cannot touch either axis.

Explanation

An indifference curve cannot touch either axis. In Figure 2, If IC touches X-axis, at B, the consumer will be having OB quantity of good X and none of Y. Similarly, if an indifference curve touches Y-axis at A, the consumer will have only OA of Y good and no amount of X. This violates the basic assumption that the consumer buys two goods in combinations.

 

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