Consumer preferences can be represented graphically using indifference curves.

Indifference curves displays all combinations of market baskets that the person is indifferent to ( provide the same level of satisfaction). So A person will be equally satisfied with either choice.

Let us comprehend the phenomenon with an example:

 

Graphing  the points with one good on the x-axis and one good on the y-axis. Plotting the points, we can make some quick observations about preferences where more is better than less.

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Interpretation of the Graph:

  • Points such as B & D have higher level of one good but less of another compared to the point A.
  • Need more information about consumer ranking.
  • Consumer must decide they are indifferent between B, A and D.
  • So than we can then connect those points with an indifference curve.

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Conclusion

From the above example it is concluded that :

  • Any market basket of an indifference curve when away or upward is preferred to any market basket that lies on the indifference curve.
  • Points on the curve are preferred to points below the curve.
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