Page 61 - DECO401_MICROECONOMIC_THEORY_ENGLISH

Microeconomic Theory

Notes 5. Indifference curve should generally not touch X-axis or Y-axis: It is assumed that consumer
buys the combination of goods, and then indifference curve touches neither X-axis nor Y-axis. If
indifference curve touches either of the axes then it means consumer wants only one commodity
and his demand for the second commodity is zero. It is only possible when out of two commodities,
one commodity represents money. An indifference curve may touch Y-axis if it represents money.
As shown in Fig. 4.10 indifference curves IC touches OY-axis at point ‘M’. It means the consumer
wants to keep OM quantity of money and does not want to buy any unit of apples. In opposite
at point ‘N’ consumer likes to have a combination of OP quantity of money and OQ quantity of
apples. This combination will yield him same satisfaction as by keeping only money i.e., by OM
amount of money.

Fig. 4.10

Y

M
Money

P N

IC
O X
Q
Apples

6. Indifference curve need not be parallel to each other: As shown in Fig. 4.11, indifference curves
may or may not be parallel to each other. It depends on the marginal rate of substitution of two
curves shown in the indifference map. The marginal rate of substitution of different points on two
curves diminishes at constant rate, then these curves will be parallel to each other, otherwise they
will not be parallel.

Fig. 4.11
Y

Oranges

IC
3
IC 2
IC
1
O X
Q
Apples

54 LOVELY PROFESSIONAL UNIVERSITY