Q:

What are characteristics of an indifference curve?

A:

Quick Answer

An indifference curve has a negative slope and is convex to the origin. Two indifference curves cannot cross each other. A higher indifference curve indicates a higher satisfaction level. Indifference curves are drawn in a graph to show the combination of two products that give a consumer a given level of satisfaction. Economists use them to analyze the effect of changes in prices and income.

Know More
What are characteristics of an indifference curve?
Credit: Paul Bradbury Caiaimage Getty Images

Full Answer

The negative slope for any two products suggests that an increase in consumption of one product must accompany a decrease in the other to maintain the same level of satisfaction on an indifference curve. The convex nature of the curve to the origin implies that a real-world consumer cannot buy and use only one type of a good. If two goods were perfect substitutes for each other, indifference curves would be concave or straight lines.

Indifference curves do not intersect, because different combinations of products give varying levels of satisfaction, especially when the amount of the same product is different in each curve. Consumers prefer products on the higher curve that gives a higher level of satisfaction.

In analyzing indifference curves, one can tell whether two products complement or substitute each other. If a fall in the price of product A results in increased purchase of A and B, the two products are complements.

Learn more about Economics

Related Questions

  • Q:

    What is an upward sloping demand curve?

    A:

    An upward sloping demand curve indicates that demand for a good or service increases as price increases. Upward sloping demand curves are the result of conspicuous consumption and products known as “Giffen goods.”

    Full Answer >
    Filed Under:
  • Q:

    What is the Laffer curve?

    A:

    The Laffer Curve is a theoretical construct that shows the relationship between tax rates and the tax revenue that is actually collected by the government. The curve shows the optimal amount of taxation for any given society so the government gets the most amount of revenue collected from the taxes.

    Full Answer >
    Filed Under:
  • Q:

    What is a demand curve?

    A:

    A demand curve is a graphical representation of the demand of a product based on its price. Demand curves are downward sloping, demonstrating the law of demand that states that the quantity of a product or service demanded moves in the opposite direction of its price.

    Full Answer >
    Filed Under:
  • Q:

    What is the origin of economics?

    A:

    Investopedia explains that the origin of economic thought lies with a man named Adam Smith who was heavily influenced by French writers and philosophers. Smith developed the discipline of economics as an alternative to French mercantilism, which was an easily exploited system that benefited the wealthy at the expense of the common classes. Other important economic thinkers include Karl Marx, Milton Friedman and John Maynard Keynes.

    Full Answer >
    Filed Under:

Explore