Community indifference curve explained

A community indifference curve is an illustration of different combinations of commodity quantities that would bring a whole community the same level of utility. The model can be used to describe any community, such as a town or an entire nation. In a community indifference curve, the indifference curves of all those individuals are aggregated and held at an equal and constant level of utility.

History

Invented by Tibor Scitovsky, a Hungarian born economist, in 1941.

Solving for a CIC

A community indifference curve (CIC) provides the set of all aggregate endowments

(\bar{x}, \bar{y}) = (x _{1} + x _{2,} y _{1,} + y _{2)} needed to achieve a given distribution of utilities, (\bar{u _{1},} \bar{u _{2})} . The community indifference curve can be found by solving for the following minimization problem:
min \bar{y} s.t. U _{1(x} _{1,} y _{1)} \geq \bar{u _{1}} and U _{2(\bar{x},} \bar{y} - 1 ) \geq \bar{u _{2}}

CICs assume allocative efficiency amongst members of the community. Allocative Efficiency provides that

MRS _{1} xy = MRS _{2} xy .The CIC comes from solving for \bar{y} in terms of \bar{x} , y _{cic} (\bar{x}) .

Community indifference curves are an aggregate of individual indifference curves.

See also

• Indifference curve

References

Albouy, David. "Welfare Economics with a Full Production Economy." Economics 481. Fall 2007.

Deardorff's Glossary of International Economics.