Consider two arbitrarily selected combinations of shmoo and asparagus, shown as bundle x and bundle y in Figure 7. Indifference analysis assumes that you always prefer more of each good to less, and that you either (a) prefer bundle x to y, (b) prefer y to x, or (c) are indifferent between bundle x and bundle y. Clearly you prefer x to y because x has the same amount of asparagus but more shmoo. Now let us create a new bundle z by adding small amounts of asparagus or shmoo, or both, to combination y until you are indifferent between x and the new bundle z. These bundles are shown in Figure 7.
We have connected the points representing the combinations where you are indifferent between x, z, and similarly desirable bundles.
Indifference curves reflect a consumer’s preferences and connect all bundles of goods between which the consumer is indifferent.
Indifference curves have certain properties:
1. Every possible combination of goods is on some indifference curve.
2. Indifference curves are negatively sloped because you must get more of one good to maintain your level of satisfaction when you give up some of the other good.
3. Indifference curves that are further from the origin are preferable because they represent larger bundles of goods.
4. Indifference curves never intersect.
5. The slope of an indifference curve reflects the relative subjective benefits (marginal utilities) of the goods, –MUa/MUb.
6. Indifference curves are convex (bowed in toward the origin).
The first five of these properties should be fairly obvious. The sixth is based on diminishing relative marginal utilities. In this context, this means that consumers prefer variety to monotony. The following example asks you to use your intuition to show why.
Suppose steak is your favorite meat but you almost despise chicken. What would happen if your meat intake were restricted to steak for a solid year? We would bet that you would sacrifice a few steaks for a box of the Colonel’s best. The more you have of a single thing, the more you are willing to give some of it up to have a larger amount of something else. This preference for variety over sameness causes indifference curves to be bowed toward the origin (convex).