Different people have different preferences. But even given an individual’s preferences, there may be different consumption bundles 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.

Using indifference curves to analyze consumer behavior will serve us in three ways. First, indifference curves show how diminishing marginal utility determines the trade-off a consumer makes between consuming more of one good and less of another. Second, they provide a framework for a more in-depth analysis of income and substitution effects—how changes in price and income alter the optimal consumption bundle. Lastly, indifference curves allow us to illustrate differences in tastes between two people, and how those differences in tastes lead to different optimal consumption bundles. Indifference curves, then, allow us to get a deeper understanding of what it means to be a rational consumer.