Indifference Curve Mappings
When a large number of bundles of goods are compared, the preferences of the individual can be seen. This information is usually put together on a graph called an indifference map. One of these is shown below:
Each indifference curve is a set of points, each representing a combination of quantities of two goods or services, all of which combinations the consumer is equally satisfied with. The further a curve is from the origin, the greater is the level of utility. The slope of the curve (the negative of the marginal rate of substitution of X for Y) at any point shows the rate at which the individual is willing to trade off good X against good Y maintaining the same level of utility. The curve is convex to the origin as shown assuming the consumer has a diminishing marginal rate of substitution. It can be shown that consumer analysis with indifference curves (an ordinal approach) gives the same results as that based on cardinal utility theory — i.e., consumers will consume at the point where the marginal rate of substitution between any two goods equals the ratio of the prices of those goods (the equi-marginal principle).
Read more about this topic: Ordinal Utility
Famous quotes containing the words indifference and/or curve:
“The sensitivity of men to small matters, and their indifference to great ones, indicates a strange inversion.”
—Blaise Pascal (16231662)
“And out again I curve and flow
To join the brimming river,
For men may come and men may go,
But I go on forever.”
—Alfred Tennyson (18091892)