Thursday, 16 May 2013

What are the characteristics of the indifference curve (cobb douglas specific)

These are the few characteristics of the cobb dougles indifference curve

1. It cannot be thick
2. Indifferent curve cannot cross or intersect each other
3. It is convex
4. It is bowed towards the origin

Before i go on explaining and illustrating it graphically, lets think about what concept of monotonicity /convexity / transitivity that it violates if any of the above 4 conditions occurs. =)

Graphically:

1. Indifference curve cannot be thick
    (Violates monotonicity)



2. Indifferent cannot intersect each other
    (Violate monotonicity and Transitvity)

Source : Pearson
3. It is not concave
    (violates monotonicity and convexity)



4. It is bowed towards the origin
    (Reference marginal rate of substitution and follow on to why must IC be convex)





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