Economics Explained: Indifference Curve
In this discussion, we will define indifference curves and examine their characteristics. Indifference curves were first introduced by the English economist F. Y. Edgeworth in the 1880. The concept was refined and used extensively by the Italian economist Vilfredo Pareto in the early 1900. Indifference curves are a crucial tool of analysis because they are used to represent an order of the tastes and preferences of the consumer and to show how the consumer maximizes utility in spending income.
An indifference curve shows the various combinations of two goods that give the consumer equal utility or satisfaction. A higher indifference curve refers to a higher level of satisfaction, and a lower indifference curve refers to less satisfaction. However, we cannot exactly measure how much extra satisfaction or utility a higher indifference curve indicates. Different indifference curves simply provide an ordering or ranking of the individual’s preference.
In order to conduct the analysis, we will assume that there are only two goods, X and Y. Below table gives an indifference schedule showing the various combinations of hamburgers (good X) and soft drinks (good Y) that give the consumer equal satisfactionHamburgers (Good X) | Soft Drinks (Good Y) | Combinations | |
---|---|---|---|
1 | 10 | A | |
2 | 6 | B | |
4 | 3 | C | |
7 | 1 | F |