Page 77 - DECO101_MICRO_ECONOMICS_ENGLISH

Micro Economics

Notes
Figure 6.1: Intersecting Indifference Curves

Commodity Y A B IC’

C
IC
O M N
Commodity X

Since ON of X is common to both the sides, the above equation would mean that

BN of Y = CN of Y
But Figure 6.1 shows BN > CN. Therefore, combinations Band C cannot be equal in terms of
satisfaction. The intersection, therefore, violates the transitivity rule, which is a logical necessity
in indifference curve analysis. The same reasoning is applicable when two indifference curves
are tangent with each other.

Upper Indifference Curves represent a Higher Level of Satisfaction

An indifference curve placed above and to the right of another represents a higher level of
satisfaction than the lower one. In Figure 6.2, indifference curve IC is placed above the curve IC .
2
1
It represents, therefore, a higher level of satisfaction.
The reason is that an upper indifference curve contains all along its length a larger quantity of
one or both the goods than the lower indifference curve. And a larger quantity of a commodity
is supposed to yield a greater satisfaction than the smaller quantity of it, provided MU>0. For
instance, consider the indifference curves IC and IC in, Figure 6.2.
1 2
Figure 6.2: Comparison between Lower and Upper Indifference Curves

b
Quantity of Y Y c d

a
IC
2

IC
1
O X
Quantity of X

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