Community indifference curve

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:

$\min {\bar {y}}{\text{ s.t. }}U_{1}(x_{1},y_{1})\geq {\bar {u_{1}}}{\text{ and }}U_{2}({\bar {x}},{\bar {y}}-1)\geq {\bar {u_{2}}}$

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.

References

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

Deardorff's Glossary of International Economics.

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Community indifference curve

History

Solving for a CIC

See also

References