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 freedom of indifference, the indifference of freedom, the will dust in the dust of its object, the act a handful of sand let fall—these were some of the shapes he had sighted, sunset landfall after many days.”
—Samuel Beckett (1906–1989)
“In philosophical inquiry, the human spirit, imitating the movement of the stars, must follow a curve which brings it back to its point of departure. To conclude is to close a circle.”
—Charles Baudelaire (1821–1867)