Answer to Question #51609 in Microeconomics for beena

Question

If there are only two goods, is it possible to illustrate a consumer’s preferences over them with an indifference map? Draw an indifference map with three indifference curves. What are a few standard assumptions about what an indifference map can and cannot look like? What are those assumptions and what reasoning lie behind them?

Answer 1

If there are only two goods, it is possible to illustrate a consumer’s preferences over them with an indifference map. An indifference curve is a graph showing different bundles of goods between which a consumer is indifferent. That is, at each point on the curve, the consumer has no preference for one bundle over another. One can equivalently refer to each point on the indifference curve as rendering the same level of utility (satisfaction) for the consumer. In other words an indifference curve is the locus of various points showing different combinations of two goods providing equal utility to the consumer. Utility is then a device to represent preferences rather than something from which preferences come. The main use of indifference curves is in the representation of potentially observable demand patterns for individual consumers over commodity bundles. There are infinitely many indifference curves: one passes through each combination. A collection of (selected) indifference curves, illustrated graphically, is referred to as an indifference map.