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.
Contents
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 (x-bar, y-bar) = (x1 + x2, y1, + y2) needed to achieve a given distribution of utilities, (u1-bar, u2-bar). The community indifference curve can be found by solving for the following minimization problem:
Min y-bar s.t. U1(x1, y1,) ≥ u1-bar and U2(x-bar – x1,y-bar – y1) ≥ u2-bar
CICs assume allocative efficiency amongst members of the community. Allocative Efficiency provides that MRS1xy = MRS2 xy. The CIC comes from solving for y-bar in terms of x-bar, y-cic(x-bar).
Community indifference curves are an aggregate of individual indifference curves.