MRS for it are such that he does not consider it worthwhile to purchase even one unit of it. The indifference curves are usually convex to the origin. Convexity of indifference curves implies that the marginal rate of substitution of X for Y falls as more of X is substituted for Y.
Thus, indifference curves are convex to the origin when principle of diminishing marginal rate of substitution holds good and which is generally the case. But the possibility of indifference curves being concave to the origin cannot be ruled out in some exceptional cases. Concavity of the indifference curves implies that the marginal rate of substitution of X for y increases when more of X is substituted for Y.
It will be clear from the analysis made below that in case of indifference curves being concave to the origin the consumer will choose or buy only one good. In other words, concavity of indifference curves implies that the consumer has a distaste for variety, that is, does not like diversification in consumption.
However, distaste for variety cannot be considered a normal or model behaviour, so we regard convexity to be the general case. But when consumers have a distaste for variety and diversification the case of concave indifference curves will occur.
In case of concave indifference curves, the consumer will not be in equilibrium at the point of tangency between budget line and indifference curve, that is, in this case interior solution will not exist.
Let us take Fig. But the consumer cannot be in equilibrium at Q since by moving along the given budget line BL he can get on to higher indifference curves and obtain greater satisfaction than at Q. Thus by moving to K on the given budget line BL, he will get more satisfaction than at Q since K lies on a higher indifference curve than Q.
He can increase his satisfaction still more by moving to point Z on the budget line BL. Thus, as he moves upward from tangency point Q on the budget line his satisfaction will go on increasing until he reaches the extremity point B. Likewise, if from Q he moves downward on the budget line, he will get on to higher indifference curves and his satisfaction will go on increasing till he reaches the other extremity point L. In these circumstances the consumer will choose only one of two goods: he will buy either X or Y depending upon whether L or B lies on the higher indifference curve.
In the situation depicted in Fig 8. Therefore, the consumer will choose only Y and will buy OB of Y. It should be carefully noted that at B the budget line is not tangent to the indifference curve IC 5 , even though the consumer is here in equilibrium. It is clear that when a consumer has concave indifference curves, he will succumb to monomania, that is, he will consume only one good. In our analysis above, we have shown that corner solution of consumer s equilibrium is possible even when his indifference curves between goods are convex.
It is worth noting that in case of convex indifference curves, corner equilibrium is however not inevitable, it occurs only when price of a commodity is too high as compared to the marginal rate of substitution of even the first unit of the commodity.
This implies that more of commodity X a consumer has the more useful or significant in terms of satisfaction an extra unit of it becomes. Therefore, the concave indifference curves do not seem to be plausible or realistic.
Now, as seen above, the concavity of indifference curves for a consumer implies that the consumer spends his entire income on a commodity and therefore buys only one commodity. However, consumption of one good only by a consumer which the concavity of indifference curves leads us to believe is quite unrealistic. Observations in the real world reveal that consumers do not spend their entire income on a single commodity and in fact purchase a multitude of different goods and services. This rejects the existence of concave indifference curves.
Our analysis of inevitability of corner equilibrium in case of concave indifference curves provides us an important economic rationale for indifference curves being convex rather than concave.
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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. Typically, indifference curves are shown convex to the origin, and no two indifference curves ever intersect. Compare Accounts. The offers that appear in this table are from partnerships from which Investopedia receives compensation.
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