The Assumptions of Indifference Curves and Their Properties
The assumptions of Indifference Curves and their properties
The indifference curve technique does not make use of the Marshallian concept of measurability of utility in quantitative terms. On the other hand, it is based upon the concept of scale of preferences and the ordinal measurement of utility. Utility is a subjective entity, a psychological feeling and is, therefore, not amenable to quantitative measurement. The concept of ordinal utility implies that a consumer is able to compare the different levels of satisfaction, though he may not be able to specify the exact amounts of utilities in numbers that he derives from commodities or any combination of them. He can only judge whether the satisfaction derived from a good or a combination of these is equal to, greater than or less than another. In other words, he is in a position to rank his preferences consistently.
The indifference-curve analysis is based upon what is called preference-indifference hypothesis. The consumer is assumed to be in a position to indicate his preference or indifference between the various combination's of goods. If the various combination's are designated as A, B, C, D, E, F. etc., then the consumer can find for himself whether he prefers A to B or B to A or is indifferent between them. Similarly, he can reveal his judgment as regards his preference or indifference for any other pair of commodities. He can simply state his preference or indifference and cannot measure the utility derived from any of the combination's.
We are familiar with the contour lines. We cannot measure them, but we know that some of them are higher whereas others are at a lower level. Such is the case with consumer's preferences.
It is possible to draw up a curve linking the various combinations on it which give to the consumer equal utility or satisfaction and they consumer s indifferent between any combinations on it.
Let us now start by considering a consumer who wants to buy apples and mangoes. He does not make purchases of the amounts of these two commodities arbitrarily. He knows it well that one combination of apples and mangoes gives him as much satisfaction (total utility) as another combination of less apples and more mangoes or another combination of more apples and less mangoes. The consumer cannot tell how much utility he secures from an apple or from a mango but he has got a scale of preferences between these two commodities so as to be able to compare the satisfactions derived from one basketful of apples and mangoes and another basketful of these two commodities. In other words, he knows what substitution of apples for mangoes or mangoes for apples will leave him with the same or equal satisfaction.
Thus our consumer has in mind an indifference schedule. This schedule has several combination's of apples and mangoes from which he derives same or equal total satisfaction. Or we can say that the various combination's are equally preferred or desired by him.