How do you explain an indifference curve?


Quick Answer

In microeconomics, an indifference curve (IC) is a graph depicting various combinations of two goods that would leave the consumer with the same level of utility. Indifference curves are downward sloping and convex to the origin.

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Full Answer

The X and Y axes measure the quantities of goods X and Y, respectively. Every point on the indifference curve represents the quantities of a good X and Y a consumer might choose. Every point on the indifference curve represents a set of consumption bundles, between which the consumer is indifferent. In other words, the consumer has no preference for one consumption bundle over another as long as the quantities of goods X and Y fall somewhere along the indifference curve. All points on the indifference curve provide the same level of utility and satisfaction, assuming all other things constant.

The purpose of mapping and analyzing indifference curves is to study how a rational person would choose among the set of all possible bundles. In addition, the indifference curve is used to find the point that would maximize the utility of an individual. The level of utility is maximized at the point in which the budget constraint is tangent to the utility curve. Therefore, one can find the optimal bundle by determining the point at which the budget constraint crosses the indifference curve exactly once. This set would provide the consumer with the highest level of utility from the consumption of good X and good Y.

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