Glossary term
Indifference Curve: Meaning and Definition
Reviewed and approved by Dr. Anamika ShrivastavaPublished Last updated
An indifference curve joins all bundles of two goods that the consumer regards as equally good. Because more is preferred to less, it slopes downward, and its slope in absolute value is the marginal rate of substitution. Curves farther from the origin represent higher satisfaction.
In more detail
Indifference curves map a consumer’s tastes. Moving along one, extra units of one good are traded off against units of the other while satisfaction stays the same. Because consumers prefer more to less, a curve further from the origin is better. Two curves can never cross, or preferences would contradict themselves.
Example
A consumer indifferent between (1, 3) and (3, 1) would have both bundles on the same curve. She is willing to give up two units of good 2 for two more of good 1 at that stage, while a bundle with more of both goods lies on a higher curve.
Key points
- It is convex to the origin because the marginal rate of substitution diminishes.
- Curves do not cross.
- The consumer's optimum is where the budget line touches the highest reachable curve.
Common mistake
Reading the curve as showing quantities bought. It shows preferences, not purchases.
Related terms
Where it is explained
This term is explained in Class 12 Microeconomics Chapter 2: Theory of Consumer Behaviour.