What shows various combinations of two alternatives that yield the same amount of total satisfaction?

Follow this resource to learn more about the concept of indifference curves. Make sure to answer the "Try It" quiz questions that show you the correct answer.

People cannot really put a numerical value on their level of satisfaction. However, they can, and do, identify what choices would give them more, or less, or the same amount of satisfaction. An indifference curve shows all combinations of goods that provide an equal level of utility or satisfaction.

For example, Figure 1 presents three indifference curves that represent Lilly's preferences for the tradeoffs that she faces in her two main relaxation activities: eating doughnuts and reading paperback books. Each indifference curve (Ul, Um, and Uh) represents one level of utility. First we will explore the meaning of an individual indifference curve and then we will look at the relationship between different indifference curves.

Figure 1. Lilly's Indifference Curves. Lilly would receive equal utility from all combinations of books and doughnuts on a given indifference curve. Any points on the highest indifference curve Uh, like F, provide greater utility than any points like A, B, C, and D on the middle indifference curve Um. Similarly, any points on the middle indifference curve Um provide greater utility than any points on the lowest indifference curve Ul.

• • Upon successful completion of this unit, you will be able to:

    • explain consumer preferences using concepts related to utility, including total utility and marginal utility;
    • analyze a household’s budget line and describe how it changes when prices or incomes change;
    • use indifference curves to explain the principle of diminishing marginal rate of substitution; and
      
    • derive a demand curve from an indifference map by analyzing the quantity of the good consumed at different prices.

  • • 
      Introduction to Consumer Choices Book

      Read all the sections in this chapter for information on consumer choice, including utility, consumer equilibrium, consumer equilibrium demand, consumer surplus, budget constraint, and consumer equilibrium and indifference curves.

    • The Analysis of Consumer Choice Book

      Read the Introduction and these two sections. Attempt the "Try It" problems at the end of each section. Take a moment to read through the stated learning outcomes for this chapter of the text, which you can find at the beginning of each section. These outcomes should be your goals as you read through the chapter.

    • Rules for Maximizing Utility Book

      Read this article to learn more about how to calculate marginal utility per dollar. Make sure to answer the "Try It" questions.

    • 
      The Art of Choosing Page

      This is an optional lecture and not a requirement of the course. The speaker talks about her ground-breaking research on how people make choices and explains attitudes towards their decisions.

    • Marginal Utility Page

      Watch this video about marginal utility. Make sure that you understand that marginal utility is a concept in economics that is used to explain and measure the satisfaction that consumers get when consuming something. For example, if you consume a soda, we assume in economics that you get some sort of satisfaction, your "utility", and marginal utility will be the additional satisfaction that you get from consuming an additional soda.

    • Budget Line Page

      Watch this video to learn how to depict the budget line in a graph. Remember that the budget line for a consumer will show the different combinations that can be bought for two goods given a fixed budget of some sort.

    • Equalizing Marginal Utility per Dollar Spent Page

      Watch this video about equalizing marginal utility per dollar spent for two products. Keep in mind that this method is for figuring out what products would people prefer to spend on given a budget.

    • Adding Demand Curves Page

      Watch this video about adding demand curves of individuals to arrive at the overall market demand curve. You can think of the overall demand curve as one that is composed of all of the individual demand curves.

    • Preference and Utility Page

      Watch this lecture for an explanation of consumer theory, and especially mathematical representations of consumer preferences.

  • • Indifference Curves Book

      Read this section for additional details about indifference curves and consumer behavior.

    • Indifference Curve Analysis Book

      Follow this resource to learn more about the concept of indifference curves. Make sure to answer the "Try It" quiz questions that show you the correct answer.

    • Types of Indifference Curves Page

      Watch this video about to learn how to depict the different types of indifference curves depending on whether a product is a normal good, perfect substitute, or a perfect complement. You should consider reviewing the main reading material from Unit 4.1. that covered these concepts.

    • Optimal Point on Budget Line Page

      Watch this video about the optimal point on a budget line. The optimal consumer choice in the indifference curve analysis is determined by the tangency condition between the marginal rate of transformation (MRT) and the marginal rate of substitution (MRS).