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.
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.
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.