## Monday, May 3, 2010

### Assumptions of indifference curve

The theory of indifference curve is based on the following assumptions:
1. Not measurable quantitatively :Since utility is a psychological phenomenon,it cannot be measured quantitatively.
2. Levels of satisfaction comparable :The consumer can compare the different levels of satisfaction.But he cannot express the utility in particular quantity.
3. Consistent ranking :The consumer can rank his preference consistently.In fact,the basis of indifference curve is the preference indifference hypothesis.So if there are combinations A,B,C,D the consumer can rank their scale of preference.In indifference curve,the consumer can say whether he prefer A to B or B to A or is indifference between them.
4. Transitivity :Indifference curve assumes transitivity of preference.The transitivity means that if the consumer prefers A to B and B to C,he also prefers A to C.Similarly,if he is indifference between A and B and B and C,he is also indifferent between A and C.
5. Weak-ordering :Indifference curve is based on the weak ordering of the preference hypothesis.According to weak-ordering,the consumer may prefer A to B or B to A or he may be indifference between A and B.On the other hand,strong ordering assumes only that the consumer prefers A to B or B to n A but does not assume that the consumer can be indifferent between A and B.The strong ordering assumes the relation of preference.On other hand weak ordering assumes the relation of preference and also indifference.

Post a Comment