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Higher indifference curve represents higher level of satisfaction to the consumer'. Explain the statement, also state the underlying assumption related to this property of indifference curve. |
Answer» SOLUTION :(i) Higher IC lying above and to the right of another IC represents a higher LEVEL of satisfaction. All combinations of goods X and Y lying on the higher INDIFFERENCE CURVE `IC_2` have more satisfaction than lower indifference curve `"IC"_1` as shown in figure given here.  (ii) This is because of monotonic preferences , as monotonic preferences state that we must have atleast more of one good and no less that of other goods (means other goods can be equal or greater , but not less). The figure above shows that bundle `F("Ox"_2+"OY"_2)` is monotonicpreferred to bundle `F("Ox"_1+"OY"_1)`So , if bundle F is monotonic preferred to bundle E than F bundle gives more satisfaction than that of Bundle E. (iii) It can be seen from the above DIAGRAM that all combinations of `IC_2` contain a large quantity of both X and Y, than all combinations of `"IC"_1 ` . For, e.g. , point E lying on `"IC"_1` represents `"OX"_1` units of X and `"OY"_1` units of Y. Point F lying on `"IC"_2` represents more units of Y, i.e `"OY"_1` as well as more units of X, i.e. `"OX"_2` . The consumer gets greater satisfaction from a lager pieces of goods than from a smaller amount . Hence , point F shall be on a higher IC and Shall be more preferable to point E, lying on lower IC. |
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