Changes

==Indifference Curve==

==Indifference Curve==

In graphing your utility for two goods, you can construct what is known as an “indifference curve.” Let’s take an example.  Suppose you are working on the homework for this course with three friends - Chris, Stephanie and Kevin.  Someone says they are hungry and go to look for snacks.  You see a half-eaten bag of potato chips and you pop a bag of popcorn.  However, there is not enough food for everyone, so have to ration who receives what.

Now that we understand the important concept of utility, we can graph it by using an "indifference curve."  In a simple case, consider having separate utilities for two different goods.  The goods could be food (like two types of candy), or they could be websites (like Conservapedia and Facebook), or they could be modes of transportation (like a car or a bicycle).  The point is that there is a trade-off in utility when you substitute one good for the other.  Your overall utility will increase, remain the same, or decrease, when you give up some of one of the good in exchange for more of the other good.

 

When the quantity for one of these two goods is graphed on the x-axis, and the quantity for the other good is graphed on the y-axis, then we can draw a line that represents '''''constant utility''''' as we substitute one good for the other. 

 

'''''The indifference curve is a graph of utilities such that every point along a curve has the same amount of total utility. A person should be "indifferent" to where he is along the curve, because it shows where his total utility is constant.'''''

 

Let's take a simple example.  Suppose you like chocolate and peanut butter equally well, and you are "indifferent" between receiving one chocolate bar and one peanut butter candy bar.  Plotting the good for a chocolate bar on the x-axis and the good for a peanut butter candy bar on the y-axis, the indifference curve will be a straight line with a negative slope of 1.  Give up a chocolate bar but receive a peanut butter bar, and you're on the same indifference curve:  your overall utility has not changed.  But give up a chocolate bar and receive TWO peanut butter bars, and you've increased your overall utility and you've left that original indifference curve.  You're better off with that deal and are not "indifferent" to it.  You want the improvement in utility in the 2-for-1 deal.

 

Let’s take another example that illustrates the usefulness of an indifference curve.  Suppose you are working on the homework for this course with three friends - Chris, Stephanie and Kevin.  Someone says they are hungry and go to look for snacks.  You see a half-eaten bag of potato chips and you pop a bag of popcorn.  However, there is not enough food for everyone, so have to ration who receives what.

You count 24 potato chips and 40 kernels of popcorn.  Uh oh.  There are four of you.  On average, that’s only 6 potato chips and 10 kernels of popcorn per person.  You tell everyone that.

You count 24 potato chips and 40 kernels of popcorn.  Uh oh.  There are four of you.  On average, that’s only 6 potato chips and 10 kernels of popcorn per person.  You tell everyone that.