Finance: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 [math]\displaystyle{ (\bar{x}, \bar{y}) = (x_1 + x_2, y_1, + y_2) }[/math] needed to achieve a given distribution of utilities, [math]\displaystyle{ (\bar{u_1}, \bar{u_2}) }[/math]. The community indifference curve can be found by solving for the following minimization problem:
[math]\displaystyle{ \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} }[/math]
CICs assume allocative efficiency amongst members of the community. Allocative Efficiency provides that [math]\displaystyle{ MRS_1 xy = MRS_2 xy }[/math]. The CIC comes from solving for [math]\displaystyle{ \bar{y} }[/math] in terms of [math]\displaystyle{ \bar{x} }[/math], [math]\displaystyle{ y_{cic}(\bar{x}) }[/math].
Community indifference curves are an aggregate of individual indifference curves.
See also
References
Albouy, David. "Welfare Economics with a Full Production Economy." Economics 481. Fall 2007.
Deardorff's Glossary of International Economics.
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