Indifference Curves
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Utility Functions • Individuals have utility functions U(A,B)
Indifference Curves
Lectures in Microeconomics-Charles W. Upton
Indifference Curves
Utility Functions • If U(A1,B1) > U(A2,B2) (A1,B1) is preferred to (A2,B2) • If U(A1,B1) = U(A2,B2) The consumer is indifferent between (A1,B1) & (A2,B2)
Utility Functions • (A1,B1) is preferred to (A2,B2) – Then U(A1,B1) > U(A2,B2)
Indifference Curves
Utility Functions
Indifference Curves
A
Combinations of A & B
• (A1,B1) is preferred to (A2,B2) – Then U(A1,B1) > U(A2,B2)
• The consumer is indifferent between (A1,B1) & (A2,B2) – Then U(A1,B1) = U(A2,B2)
Indifference Curves
We represent an individual’s preferences with indifference curves, plots of points representing equal utility
Indifference Curves
B
1
A
Combinations of A & B
A
Combinations of A & B
4
5 7
3
2 \
8 6
1 B
Indifference Curves
A
Combinations of A & B
7
3
2 \
8
3
2 \
8
1
6
An Indifference Curve
4
5 7
3
2 \
8
1
I1
B
B
Indifference Curves
A
6 Indifference Curves
2 \
5=2=6
4
7
3 8
1
An Indifference Curve
5=2=6
4
7
B
Indifference Curves
5
An Indifference Curve
5
6
1
A
A
3>1
4
5
B
Indifference Curves
I2
6 Indifference Curves
I1
B
2
A
An Indifference Curve
4
5 7 2 \
A
An Indifference Curve
4
5
3
7
3
8
2 \
8
I2
6
1
Indifference Curves
I1
Properties of Indifference Curves A
I2
6
1 B
I3
Indifference Curves
I1
B
There are an Infinite Number A
4
5 7
3
2 \
8
I3 I2
6
1
Indifference Curves
4
5
I1
7
3
2 \
8
Indifference Curves
They Never Cross
I2
6
1 B
I3
I1
B
They Never Cross
A
A
R >G 4
5 7
3
2 \
8
1
4
5
I3 I2
6 Indifference Curves
G>R
I1
7
3
2 \
8
1 B
I3 I2
6 Indifference Curves
I1
B
3
End ©2004 Charles W. Upton
Indifference Curves
4
Indifference Curves
Lectures in Microeconomics-Charles W. Upton
Indifference Curves
Utility Functions • If U(A1,B1) > U(A2,B2) (A1,B1) is preferred to (A2,B2) • If U(A1,B1) = U(A2,B2) The consumer is indifferent between (A1,B1) & (A2,B2)
Utility Functions • (A1,B1) is preferred to (A2,B2) – Then U(A1,B1) > U(A2,B2)
Indifference Curves
Utility Functions
Indifference Curves
A
Combinations of A & B
• (A1,B1) is preferred to (A2,B2) – Then U(A1,B1) > U(A2,B2)
• The consumer is indifferent between (A1,B1) & (A2,B2) – Then U(A1,B1) = U(A2,B2)
Indifference Curves
We represent an individual’s preferences with indifference curves, plots of points representing equal utility
Indifference Curves
B
1
A
Combinations of A & B
A
Combinations of A & B
4
5 7
3
2 \
8 6
1 B
Indifference Curves
A
Combinations of A & B
7
3
2 \
8
3
2 \
8
1
6
An Indifference Curve
4
5 7
3
2 \
8
1
I1
B
B
Indifference Curves
A
6 Indifference Curves
2 \
5=2=6
4
7
3 8
1
An Indifference Curve
5=2=6
4
7
B
Indifference Curves
5
An Indifference Curve
5
6
1
A
A
3>1
4
5
B
Indifference Curves
I2
6 Indifference Curves
I1
B
2
A
An Indifference Curve
4
5 7 2 \
A
An Indifference Curve
4
5
3
7
3
8
2 \
8
I2
6
1
Indifference Curves
I1
Properties of Indifference Curves A
I2
6
1 B
I3
Indifference Curves
I1
B
There are an Infinite Number A
4
5 7
3
2 \
8
I3 I2
6
1
Indifference Curves
4
5
I1
7
3
2 \
8
Indifference Curves
They Never Cross
I2
6
1 B
I3
I1
B
They Never Cross
A
A
R >G 4
5 7
3
2 \
8
1
4
5
I3 I2
6 Indifference Curves
G>R
I1
7
3
2 \
8
1 B
I3 I2
6 Indifference Curves
I1
B
3
End ©2004 Charles W. Upton
Indifference Curves
4
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