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Indifferencecurves|Policonomics

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Indifference curves
Indifference curves are lines in a coordinate system for which each of its points express a particular
combination of a number of goods or bundles of goods that the consumer is indifferent to consume. This is,
the consumer will have no preference between two bundles located in the same indifference curve, since they
all provide the same degree of utility. The indifference curves, as we move away from the origin of
coordinates, imply higher consumption and, therefore, increasing levels of utility.
An indifference map is a combination of indifference curves, which allows understanding how changes in the

Neoclassical econ.
Consumption I
Consumption II

quantity or the type of goods may change consumption patterns.

Francis Y. Edgeworth, developed the mathematics concerning the drawing of indifference curvesin his book
Mathematical Psychics: an Essay on the Application of Mathematics to the Moral Sciences, 1881, from
earlier works by William Stanley Jevons. However, Vilfredo Pareto was the first economist to draw
indifference maps as we know them nowadays, in his book Manual of Political Economy, published in 1906.

MRS
Utility function

Utility max.

The first example of indifference map showed in the adjacent

graph is the most common representation. It shows four
convex indifference curves (red), showing each curve what
amount of a good or bundle of goods x1 the consumer has to
give up in order to be able to consume more goods, or bundles
of goods, x2. This relation gives us the marginal rate of

substitution (MRS) between these goods, which is the slope of

the curve in each of its points.
Our second example is an indifference map with four parallel
lines (green). This is the case for goods or bundles of goods, y1
and y2, which are perfect substitutes, since the lines are
parallel and MRS = 1, that is the slope has an angle of 45 with
each axis. It can also be the case for goods or bundles of goods
that are perfect substitutes but in different proportions. In that
case, the slope will be different and the MRS can be defined as
a fraction, such as 1/2 ,1/3 , and so on. For perfect substitutes,
the MRS will remain constant.
Our third example shows an indifference map with four
indifference curves (blue) that represent perfect
complementary goods, z1 and z2. This is, there will not be an
increase on the consumers utility unless both goods increase
in the required proportion. The best example of
complementary goods are shoes, since the consumers utility
will not increase when he or she gets a new right shoe without
getting a new left shoe. Notice that the elbows are collinear,
and the line crossing them defines the proportion in which
each good needs to increase in order to have an increase in the
utility. In this case the horizontal fragment of each
indifference curve has a MRS = 0 and the vertical fractions a
MRS = .
These explanations of indifference curves can also be applied to production. In that case, the MRS turns into

marginal rate of technical substitution and marginal rate of transformation.

Video Indifference curves:

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Indifferencecurves|Policonomics

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