Indifference is when we have two good that we would be perfectly happy consuming in different combinations. We try to obtain the highest amount of the good without going into the unattainable. The relationship between the goods tells us which combination the consumer would be satisfied with. The indifference concept goes along with the way a consumer will substitute another good for the first good. This concept is called the marginal rate of substitution. This is the rate at which a person will give up one good to get more of the other wile staying on the same indifference curve.
On a graph, the consumer wants to attain the highest indifference curve. This curve is the one that only hits the budget line at one point. In attaining this curve, the consumer must maximize their budget and also find the perfect balance between the two goods. This point is where the marginal rate of substitution and relative price equal. The marginal rate of substitution tells you how many unit you are willing to give up to get the other good.
The indifference curve and the marginal rate of substitution are closely related concepts. If the indifference curve is steep, the marginal rate of substitution is high. If the indifference curve is flat, the marginal rate of substitution is low. The marginal rate of substitution is measured by the magnitude of the slope of an indifference curve.
ReplyDeleteI agree with you post and the consumer is always trying to attain the highest indefference curve. The consumer will always try to maximize their budget and find the perfect balance between two goods.
ReplyDeleteI agree, a comsumer will always prefer to get the most of two goods, in other words to reach the highest indifference curve, because you get the most for your dollar. So if you recieve more for your dollar by recieving more of good one than good two, it is likely that will be your selection.
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