Appendix: Indifference Curve Analysis

Appendix

Indifference Curve Analysis

After studying this Appendix you should be able to:

  • Understand the properties of indifference curves and preference maps.
  • Use indifference curves to derive demand curves and measure income and substitution effects.

Marginal utility analysis provides a good theoretical glimpse into the consumer decision-making process, yet it requires that utility be measured and that marginal utility per dollar be computed for innumerable possible consumption choices. In reality, measuring utility is impossible, as is mentally computing the marginal utility of thousands of products. To get around these difficulties, economists have developed a modern explanation of consumer decisions that does not require measuring utility. The foundation of this analysis is the indifference curve.