<< Chapter < Page Chapter >> Page >

Economists use a vocabulary of maximizing utility to describe people’s preferences. In Consumer Choices , the level of utility that a person receives is described in numerical terms. This appendix presents an alternative approach to describing personal preferences, called indifference curves, which avoids any need for using numbers to measure utility. By setting aside the assumption of putting a numerical valuation on utility—an assumption that many students and economists find uncomfortably unrealistic—the indifference curve framework helps to clarify the logic of the underlying model.

What is an indifference curve?

People cannot really put a numerical value on their level of satisfaction. However, they can, and do, identify what choices would give them more, or less, or the same amount of satisfaction. An indifference curve shows combinations of goods that provide an equal level of utility or satisfaction. For example, [link] presents three indifference curves that represent Lilly’s preferences for the tradeoffs that she faces in her two main relaxation activities: eating doughnuts and reading paperback books. Each indifference curve (Ul, Um, and Uh) represents one level of utility. First we will explore the meaning of one particular indifference curve and then we will look at the indifference curves as a group.

Lilly’s indifference curves

The graph shows three indifference curves. The x-axis is labeled “books” and the y-axis is labeled “doughnuts.” Curve Ul has no marked points. Um has the following marked points: A (2,120); B (3,84); C (11, 40); D (12, 35). Uh has point F (5,100) marked.
Lilly would receive equal utility from all points on a given indifference curve. Any points on the highest indifference curve Uh, like F, provide greater utility than any points like A, B, C, and D on the middle indifference curve Um. Similarly, any points on the middle indifference curve Um provide greater utility than any points on the lowest indifference curve Ul.

The Shape of an Indifference Curve

The indifference curve Um has four points labeled on it: A, B, C, and D. Since an indifference curve represents a set of choices that have the same level of utility, Lilly must receive an equal amount of utility, judged according to her personal preferences, from two books and 120 doughnuts (point A), from three books and 84 doughnuts (point B) from 11 books and 40 doughnuts (point C) or from 12 books and 35 doughnuts (point D). She would also receive the same utility from any of the unlabeled intermediate points along this indifference curve.

Indifference curves have a roughly similar shape in two ways: 1) they are downward sloping from left to right; 2) they are convex with respect to the origin. In other words, they are steeper on the left and flatter on the right. The downward slope of the indifference curve means that Lilly must trade off less of one good to get more of the other, while holding utility constant. For example, points A and B sit on the same indifference curve Um, which means that they provide Lilly with the same level of utility. Thus, the marginal utility that Lilly would gain from, say, increasing her consumption of books from two to three must be equal to the marginal utility that she would lose if her consumption of doughnuts was cut from 120 to 84—so that her overall utility remains unchanged between points A and B. Indeed, the slope along an indifference curve is referred to as the marginal rate of substitution , which is the rate at which a person is willing to trade one good for another so that utility will remain the same.

Questions & Answers

summarize halerambos & holbon
David Reply
the Three stages of Auguste Comte
Clementina Reply
what are agents of socialization
Antonio Reply
sociology of education
Nuhu Reply
definition of sociology of education
Nuhu
what is culture
Abdulrahim Reply
shared beliefs, values, and practices
AI-Robot
What are the two type of scientific method
ogunniran Reply
I'm willing to join you
Aceng Reply
what are the scientific method of sociology
Man
what is socialization
ogunniran Reply
the process wherein people come to understand societal norms and expectations, to accept society's beliefs, and to be aware of societal values
AI-Robot
scientific method in doing research
ogunniran
defimition of sickness in afica
Anita
Cosmology
ogunniran
Hmmm
ogunniran
list and explain the terms that found in society
REMMY Reply
list and explain the terms that found in society
Mukhtar
what are the agents of socialization
Antonio
Family Peer group Institution
Abdulwajud
I mean the definition
Antonio
ways of perceived deviance indifferent society
Naomi Reply
reasons of joining groups
SAM
to bring development to the nation at large
Hyellafiya
entails of consultative and consensus building from others
Gadama
World first Sociologist?
Abu
What is evolutionary model
Muhammad Reply
Evolution models refer to mathematical and computational representations of the processes involved in biological evolution. These models aim to simulate and understand how species change over time through mechanisms such as natural selection, genetic drift, and mutation. Evolutionary models can be u
faruk
what are the modern trends in religious behaviours
Selekeye Reply
what are social norms
Daniel Reply
shared standards of acceptable behavior by the group or appropriate behavior in a particular institution or those behaviors that are acceptable in a society
Lucius
that is how i understood it
Lucius
examples of societal norms
Diamond
Discuss the characteristics of the research located within positivist and the interpretivist paradigm
Tariro Reply
what is Industrialisation
Selekeye Reply
industrialization
Angelo
Got questions? Join the online conversation and get instant answers!
Jobilize.com Reply

Get Jobilize Job Search Mobile App in your pocket Now!

Get it on Google Play Download on the App Store Now




Source:  OpenStax, Principles of macroeconomics for ap® courses. OpenStax CNX. Aug 24, 2015 Download for free at http://legacy.cnx.org/content/col11864/1.2
Google Play and the Google Play logo are trademarks of Google Inc.

Notification Switch

Would you like to follow the 'Principles of macroeconomics for ap® courses' conversation and receive update notifications?

Ask