Why is budget line important in indifference curve analysis?

A budget line shows the combination of goods that can be afforded with your current income. If an apple costs £1 and a banana £2, the above budget line shows all the combinations of the goods which can be bought with £40.

What is the relationship between the slope of the budget line and that of the indifference curve at equilibrium?

The correct option is C) The slope of the indifference curve equals the slope of the budget line.

Do indifference curves depend on budget constraint?

An indifference curve is drawn on a budget constraint diagram that shows the tradeoffs between two goods. All points along a single indifference curve provide the same level of utility. Higher indifference curves represent higher levels of utility.

What is meant by an indifference curve and budget line explain it with its features?

An indifference curve shows a combination of two goods that give a consumer equal satisfaction and utility thereby making the consumer indifferent. Along the curve, the consumer has an equal preference for the combinations of goods shown—i.e. is indifferent about any combination of goods on the curve.

What is significance of a budget line?

A budget line shows the combinations of two products that a consumer can afford to buy with a given income – using all of their available budget.

What does budget line indicate?

Budget line is a graphical representation of all possible combinations of two goods which can be purchased with given income and prices, such that the cost of each of these combinations is equal to the money income of the consumer.

Why does an indifference curve slope downward?

(i) Indifference Curve Slopes Downwards : because in order to consume more units of X good the consumer must give up some quantity of Y good, so that consumer remains on the same level of satisfaction at each of an indifference curve.

What does the slope of an indifference curve represent?

The slope of the indifference curve is the marginal rate of substitution (MRS). The MRS is the amount of a good that a consumer is willing to give up for a unit of another good, without any change in utility.

Is budget constraint and budget line same?

(The difference between these two curves is that the PPF shows all the different combinations given time a time/production constraint, whereas a budget line shows different combinations given budget constraint. Otherwise, the two graphs are basically the same).

How does the budget line on the indifference map moves of the consumer income increases?

3.12, when a consumer’s income increases, his budget line shifts parallel and upward and when his income decreases the budget line shifts downward. As the income changes, a new equilibrium is established and the consumer moves from one equilibrium point to another.

What is indifference curve explain the characteristics of indifference curve?

The four properties of indifference curves are: (1) indifference curves can never cross, (2) the farther out an indifference curve lies, the higher the utility it indicates, (3) indifference curves always slope downwards, and (4) indifference curves are convex.

What is the significance of a budget line in economics?

What are the principles of an indifference curve?

Key Takeaways An indifference curve shows a combination of two goods that give a consumer equal satisfaction and utility thereby making the consumer indifferent. Along the curve, the consumer has an equal preference for the combinations of goods shown-i.e. Typically, indifference curves are shown convex to the origin, and no two indifference curves ever intersect.

What are the features of an indifference curve?

The very important feature of the indifference curves is that they are convex to the origin and they cannot be concave to the origin. A normal indifference curve will be convex to the origin and it cannot be concave. Only convex curves will lend to the principles of Diminishing Marginal Rate of substitution.

What are types of indifference curve?

Indifference curve will not touch the axis. Another characteristic feature of indifference curve is that it will not touch the X axis or Y axis. This is born out of our assumption that the consumer is considering different combinations of two commodities.

How to draw indifference curves?

In general, any combination that lies above and to the right of an indifference curve is preferred to any point on the indifference curve. We can draw an indifference curve through any combination of two goods.