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Explain the nature of indifference curves for all goods

Explain the nature of indifference curves for all goods

Answers

kevin
If no further assumptions about preferences are made. ICs can take very peculiar shapes.

1. Perfect Substitutes
Two goods are perfect substitutes if the consumer is willing to substitute one good for the other at a constant rate. The simplest care of perfect substitutes occurs when the consumer is willing to substitute the goods on alone to one basis. ICs for such a consumer are all parallel straight lines.
sub12032019940.png

2. Perfect Complements
Perfect complements are goods that are always consumed together in fixed proportions, e.g shoes (left and right). The ICs L shaped. With the vertex of the L occurring where the number of one good equals the number of the other good
comp12032019943.png

3. Bad goods
A bad is a commodity that the consumer doesn’t like. Suppose that the two commodities are meat and pepper, the consumer loves meat bud dislike pepper. But suppose there is some trade of possible between meat and pepper i.e. there would be some amount of meat in samosa that could compensate the consumer for having to consume a given amount of pepper, If more pepper is given in the samosa ,more meat has to be given to compensate for having to put up with the pepper. Thus this consumer will have indifference curves that slope up and to the right.
bad12032019945.png

4. Neutral Goods
A good is a neutral good if the consumer doesn’t care about it one way or the other. Suppose in the above case the consumer is just neutral about pepper (X2). The IC would be vertical lines as depicted below. The consumer only cares about the amount of X1 and doesn’t care at all about how much of X2 he/she has. The more of X1 the better but adding more X2 doesn’t affect him.
neutral12032019945.png

5. Imperfect Substitutes
If the rate at which one good is substituted for another is not constant, but diminishing, then the two goods are imperfect substitutes. As more and note of one good is given up successively larger units of the other good are consumer to compensate the consumer for the loss. Such goods will have indifference curves that are rounded, i.e. The ICs are strictly convex.
sande kevin answered the question on December 22, 2017 at 11:34

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