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The negative slope of the indifference curve implies that the marginal rate of substitution is always positive; Complete, such that all points on an indifference curve are ranked equally preferred and ranked either more or less preferred than every other point not on the curve. So, with (2), no two curves can intersect (otherwise non-satiation ...
The substitution effect is negative as indifference curves are always downward sloping. However, the same does not apply to income effect as it depends on how consumption of a good changes with income. The income effect on a normal good is negative, so if its price decreases, the consumer's purchasing power or income increases.
Perfect substitutes have a linear utility function and a constant marginal rate of substitution, see figure 3. [7] If goods X and Y are perfect substitutes, any different consumption bundle will result in the consumer obtaining the same utility level for all the points on the indifference curve (utility function). [8]
The indifference curves are L-shaped and their corners are determined by the weights. E.g., for the function min ( x 1 / 2 , x 2 / 3 ) {\displaystyle \min(x_{1}/2,x_{2}/3)} , the corners of the indifferent curves are at ( 2 t , 3 t ) {\displaystyle (2t,3t)} where t ∈ [ 0 , ∞ ) {\displaystyle t\in [0,\infty )} .
Under the standard assumption of neoclassical economics that goods and services are continuously divisible, the marginal rates of substitution will be the same regardless of the direction of exchange, and will correspond to the slope of an indifference curve (more precisely, to the slope multiplied by −1) passing through the consumption bundle in question, at that point: mathematically, it ...
The substitution effect is the change that would occur if the consumer were required to remain on the original indifference curve; this is the move from A to B. The income effect is the simultaneous move from B to C that occurs because the lower price of one good in fact allows movement to a higher indifference curve.
Whether indifference curves are primitive or derivable from utility functions; and; Whether indifference curves are convex. Assumptions are also made of a more technical nature, e.g. non-reversibility, saturation, etc. The pursuit of rigour is not always conducive to intelligibility. In this article indifference curves will be treated as primitive.
These functions are commonly used as examples in consumer theory. The functions are ordinal utility functions, which means that their properties are invariant under positive monotone transformation. For example, the Cobb–Douglas function could also be written as: + . Such functions only become interesting when there are two or more ...