indifference curve

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A graphical representation of the set of commodity bundles that are ranked as equally good by a consumer. If commodity bundles x and y are on the same indifference curve then the consumer is indifferent between x and y; and for any utility function representing the consumer's preferences

U(x) = U(y).

The indifference curves for any individual cannot cross. The slope of an indifference curve at any point shows the marginal rate of substitution between the goods, and the elasticity of substitution measures its curvature. Assume the consumer prefers more of every good to less. Then commodity bundles above an indifference curve are preferred to those on it, and these are preferred to those below. The indifference curve will also be downward-sloping. Indifference curves are convex to the origin if the consumer prefers variety (some amount of every good) to either good alone, but this is not a logical necessity. If it is assumed instead that the consumer prefers less of one of the goods, for example labour, then the indifference curves slope upwards. See also community indifference curve.

Indifference Curves

Subjects: Economics — Science and Mathematics.

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