Different people have different preferences. But even given an individual’s preferences, there may be different consumption bundles—different combinations of the goods and services an individual consumes—that yield the same total utility. This insight leads to the concept of indifference curves, a useful way to represent individual preferences. In this appendix, we will look closely at indifference curves.

In addition, the total level of utility an individual can obtain depends not only on income but also on prices—and that both income and prices affect consumer’s feasible and optimal choices. We will apply this more complete analysis of consumer choice to the important distinction between complements and substitutes. Finally, we will use this insight to examine further the income and substitution effects we covered briefly in Chapter 10.

But, let’s begin with indifference curves.