Lectures in Microeconomics-Charles W. Upton

Indifference Curves

Indifference Curves

Utility Functions

• Individuals have utility functions U(A,B)

Indifference Curves

Utility Functions

• If U(A1,B1) > U(A2,B2)

(A1,B1) is preferred to (A2,B2)

• If U(A1,B1) = U(A2,B2)

The consumer is indifferent between(A1,B1) & (A2,B2)

Indifference Curves

Utility Functions

• (A1,B1) is preferred to (A2,B2)

– Then U(A1,B1) > U(A2,B2)

Indifference Curves

Utility Functions

• (A1,B1) is preferred to (A2,B2)

– Then U(A1,B1) > U(A2,B2)

• The consumer is indifferent between(A1,B1) & (A2,B2)

– Then U(A1,B1) = U(A2,B2)

Indifference Curves

Combinations of A & BA

B

We represent an individual’s preferences with indifference curves,

plots of points representing equal utility

Indifference Curves

Combinations of A & BA

B

Indifference Curves

Combinations of A & B

\

A

B

1

5

7

2

4

3

8

6

Indifference Curves

Combinations of A & B

\

A

B

1

5

7

2

4

3

8

6

3>1

Indifference Curves

An Indifference Curve

\

A

B

1

57

2

4

3

8

6

5=2=6

Indifference Curves

An Indifference Curve

\

A

B

1

57

2

4

3

8

6

5=2=6

I1

Indifference Curves

An Indifference Curve

\

A

B

1

5

7

2

4

38

6

I1

I2

Indifference Curves

An Indifference Curve

\

A

B

1

5

7

2

4

38

6

I1

I2

Indifference Curves

An Indifference Curve

\

A

B

1

5

7

2

4

3

8

6

I1

I2

I3

Indifference Curves

Properties of Indifference Curves

\

A

B

1

5

7

2

4

3

8

6

I1

I2

I3

Indifference Curves

There are an Infinite Number

\

A

B

1

5

7

2

4

3

8

6

I1

I2

I3

Indifference Curves

They Never Cross

\

A

B

1

5

7

2

4

3

8

6

I1

I2

I3

R >G

Indifference Curves

They Never Cross

\

A

B

1

5

7

2

4

3

8

6

I1

I2

I3

G>R

Indifference Curves

End

©2004 Charles W. Upton