Presented by Maryam Noor Adeela Meer Rehma Gillani

1. INDIFFERENCE
ANALYSIS
Presented by:
● Adeela Meer
● Maryam Noor
● Rehma Gillani

2. Indifference Curve:
● An indifference curve is the locus of different points
representing all the different combinations of two goods which
yield equal level of utility to the consumer.
● Indifference schedule: Indifference schedule is a list of various
combinations of commodities which are equally satisfactory to
the consumer concerned.
● Indifference Map: An indifference map is a combination of
indifference curves, which allows understanding how changes in
the quantity or the type of goods may change consumption
patterns.

3. ● Indifference curve shows all the
possible combinations of pears
and oranges between which a
person is indifferent. Point X
shows consumption bundle
consisting of 30 pears and 6
oranges.Moving from point X to
point Y, we are willing to give up
6 pears to get two more oranges
( total utility is the same at point
X and Y).

4. IC Properties:
● Indifference curves are negatively sloped.
Given a combination of commodity X and commodity Y, with every
increase in X, the amount in Y should fall in order that the level of
satisfaction from every combination should remain the same.
● Indifference curves are convex to the origin. Convexity illustrates the
law of diminishing marginal rate of substitution.
● Indifference curves can never intersect each other.
Indifference curves can never intersect each other because each
indifference curve represents a specific level of satisfaction. If two IC's
intersect each other, then at the point of intersection, the consumer is
experiencing two different levels of utility.

5. What is the ‘Marginal Rate Of Substitution’ :
● The marginal rate of substitution is the amount of a good that a
consumer is willing to give up for another good, as long as the new good
is equally satisfying.
● It's used in indifference theory to analyze consumer behavior.
● (MRS) is calculated between two goods placed on an indifference curve,
displaying a frontier of equal utility for each combination of "good X"
and "good Y". MRS is calculated using the following formula:

6. Deriving Marginal Rate Of Substitution:
● To calculate the marginal
rate of substitution, the
change in good x is divided
by the change in good y.
● MRS(x,y) = the marginal rate
of substitution between both
goods.
● dx = the change in good x,
the number of units a
consumer is willing to give
up.
● dy = the change in good y,
the number of units a
consumer gains by giving up
units of good x

7. ● The marginal rate of substitution is 4 or 4:1. When the marginal
rate of substitution is written as a ratio, it points out how many of
good x were given up for good y.
● MRS declines as we move downward to the right along an
indifference curve.
● Convexity illustrates that people like variety.
● Indifference curves with diminishing MRS are thus convex.
● Law of diminishing marginal rate of substitution:
As you get more and more of a good X , one is prepared to
forego less and less of Y, that is MRS of X for Y diminishes as
more and more of good X is substituted for good Y.

8. Budget Line
● Budget line shows all the
combinations of two goods
that can be afforded at
current prices and with all
income spent.
● The gradient of the budget
line reveals the
opportunity cost.
● It graphically demonstrates
the budget constraint and
how it affects decision-
making.

9. ● The combination of
commodities lying to the right
of the budget line are
unattainable because the
income of the consumer is not
sufficient to be able to buy
those combinations.
● The combination of
commodities lying to the left
of the budget line are
attainable because the income
of the consumer is sufficient.
Budget Constraint

10. The budget line will shift when there is:
1. A change in prices of one
or both products with
nominal income (budget)
remaining the same.
2. A change in the level of
nominal income with the
relative prices of the two
products remaining the
same.

11. Optimal Point on Budget Line