An indifference curve is a graphical representation of the various combinations of two goods that provide a consumer with equal levels of satisfaction or utility. In other words, an indifference curve shows all the different bundles of two goods that a consumer is equally happy with.
The following are some of the assumptions that underlie the concept of indifference curves:
=>Rationality: The consumer is rational and seeks to maximize their utility.
=>Continuity: The consumer can always choose between any two bundles of goods.
=>Diminishing Marginal Rate of Substitution: As the consumer has more of one good, they are willing to give up less of the other good to get an additional unit of the first good. This is the idea of diminishing marginal utility.
=>Transitivity: If a consumer prefers bundle A to bundle B, and bundle B to bundle C, then the consumer also prefers bundle A to bundle C.
=>Non-satiation: The consumer always prefers more of a good to less of it. That is, they are never satisfied and always want more.
These assumptions allow economists to analyze how consumers make choices and how changes in prices and income affect their behavior. The indifference curve analysis is a useful tool for understanding consumer preferences and behavior in the market.
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