6. a. Indifference Curves
Indifference curves are the graphical representation of
the preferences of a consumer. The consumer finds all
the points to be equally desirable along the indifference
A
5
curve. This means that in figure 6.a.1 the consumer is
equally satisfied being at point A or B. The points A and
4
C
be correspond to differing amounts of the goods P (pizza
slices) and S (salad). The consumer has the same utility
3
(U1) anywhere along the indifference curve so he is
B
equally pleased to have any combination of pizza slices
2
and salad as shown on the indifference curve. At point A
D
U
the consumer has 1 serving of salad and 5 slices of pizza.
1
1
At point B the consumer has 3 servings of salad and 2
slices of pizza. The consumer is indifferent to either
1
2
3
4
5
6
7
8
S combination, which are referred to as market baskets.
Other market baskets, however, such as points C and D, do not offer the same utility as all the points along the
indifference curve U1. Because the basket C is above the indifference curve, we know that it will provide more
utility to the consumer than those points along U1. The point D is below the indifference curve and would offer
less utility than points along U1. Points C and D can be paired with other baskets that the consumer feels are
equal to them to show the indifference curves that C and D fall on as seen in figure 6.a.2. This indifference
curves each provide the same utility to the consumer at any point along the curve, but points on differing curves
do not provide equal utility. The further the curve is from the origin, the more utility the consumer derives from
the baskets (given that the goods are desirable).
P
Indifference Curves
6.a.1
6
P
Indifference Curves
6.a.2
6
A
5
4
C
3
B
2
Some examples of indifference curves
D
U1
1
1
Perfect Substitutes
Coke
(cans)
Indifference Curves
6.a.3
Perfect Substitutes
6
5
4
2
3
2
1
U1
2
U2
3
4
U3
5
Pepsi (cans)
6
7
5
6
7
8
S
Figure 6.a.3 shows the indifference curves for Coke and Pepsi.
This consumer considers them to be perfect substitutes, which
are goods that a consumer sees as being completely equal and
capable of taking the place of the other and being equally well
off.
3
1
4
8
Perfect Compliments
Coco
6
(cups)
Indifference Curves
6.a.4
Perfect Compliments
5
4
Figure 6.a.4 shows the indifference curves for Coco and
Marshmallows. This consumer considers the goods to be
perfect compliments, that is the consumer cannot have
one without the other.
3
U3
2
U2
1
U1
1
2
3
4
5
6
7
8
Marshmellows (pairs)
Undesirables
Indifference Curves
6.a.5
Economic Bad
6
5
4
3
2
Figure 6.a.5 shows the indifference curves for Income
and Head Aches which are undesirable, or an economic
“bad.” In this case, the market basket involves something
which is undesirable. The causes the indifference curves
to slope upwards, instead of downward as they do with
desirable goods.
U3
U2
1
U1
1
2
3
4
5
6
7
8
Head Aches (per month)
Irrelevances
Indifference Curves
6.a.6
Economic Neuter
Coffee 6
(cups)
5
4
3
2
1
1
2
3
4
5
6
7
Dust on the Moon (lbs)
8
Figure 6.a.6 shows the indifference curves for Coffee and
the amount of Dust on the moon. The amount of dust on
the moon is considered irrelevant. It is not desirable but
it is also not undesirable. It is known as economic
“neuters.”