Page 75 - DECO101_MICRO_ECONOMICS_ENGLISH

Micro Economics

Notes The negative slope of indifference curve implies:

1. that the two commodities can be substituted for each other
2. that if the quantity of one commodity decreases, quantity of the other commodity must
increase so that the consumer stays at the same level of satisfaction.

Example: Suppose you consume 10 apples and 20 bananas in a day, which gives you a
particular level of satisfaction. Now, if you consume 2 apples less, without increasing the number
of bananas, you will be at a lower level of satisfaction. You must consume 1 banana more, to
remain at the same satisfaction level. If you don’t do so, the bundle of goods (apples and bananas
together) gets smaller and you will not get as much satisfaction.
The consumer’s satisfaction cannot remain the same if indifference curves have a positive slope
(ΔY/ΔX>0) or if slope is equal to infi nity (ΔY/ΔX>∞).
(Note: ΔY/ΔX gives the slope of the indifference curves)

These situations are shown in figure through inconsistent indifference curves.

K B

Commodity Y (per unit of time) Q¢ y a b

Q y
J e c C

O Q x Q¢ x
Commodity X
(per unit of time)
Inconsistent Indifference Curves
Let us suppose that the consumer is initially at point e where he/she is deriving some utility from
OQ of X and OQ of Y. If an indifference curve has a positive slope (i.e., ΔY/ΔX>0); as shown by
x
y

the line OB and curve JK, it implies that the consumer is equally satisfied with larger and smaller
baskets of X and Y. This means an irrational behaviour of the consumer.
For instance, if the consumer moves from point e to b, the combination of the two goods increases
by ea (= bc) of Y and ec (= ab) of X. Unless MU of ea and ec are equal to zero, the level of
satisfaction is bound to increase whereas on an indifference curve, the total utility is supposed to
remain the same. Therefore, line OB and curve JK cannot be indifference curves.
Similarly, in the case of a vertical indifference line, aQ , and the movement from e to a means an
x
increase in the quantity of Y by ea, while quantity of X remains the same, OQ . If MU of ea>0,
x
the total utility will increase. So is the case if an indifference curve takes the shape of a horizontal
line such as Q C.
y

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