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Indifference curves

ford_prefect
Posts: 4,142
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11/10/2014 2:55:07 PM
Posted: 2 years ago
At 11/10/2014 2:18:12 PM, hotnicey wrote:
Why is the indifference curve negatively sloped?

Because we prefer having more goods to having fewer goods. Each individual indifference curve represents all the different combinations of goods that you are indifferent between, that is to say, that you prefer equally. In order for you to be ok with receiving less of one good, you must receive more of the other good in order to compensate your loss.

For example, say you are looking to buy beer and pizza, which each cost a dollar. You have $5, enough money to buy 3 cans of beer and 2 slices of pizza. But you could also buy 2 beers and 3 slices of pizza. If you would be equally satisfied with both combinations, then they lie on the same indifference curve. However, if you could get 3 of each, you would obviously prefer that to just 3 of one and 2 of the other. Even if you aren't going to drink the extra beer or eat the extra slice, you can save it for later. This is why indifference curves must be negatively sloped. You will never be indifferent between 3 beers and 2 pizzas and 3 beers and 3 pizzas.

So if I offer you only one beer, you are going to want more than three slices of pizza to compensate for the beer you are giving up. If you graph beer and pizza on the x and y axes, you can see that given a certain budget ($5 in this case) the combinations of goods you are indifferent to purchasing are going to lie along a negatively sloped curve.

Make sense?
Benshapiro
Posts: 3,966
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11/10/2014 2:57:46 PM
Posted: 2 years ago
Yeah it basically goes in hand with the concept of diminishing marginal utility. We prefer an assortment of goods as opposed to just all of one good or all of the other good. The higher budget you have the further right the indifference curve will shift. The furthest right indifference curve is optimal.
ford_prefect
Posts: 4,142
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11/10/2014 3:00:54 PM
Posted: 2 years ago
At 11/10/2014 2:57:46 PM, Benshapiro wrote:
Yeah it basically goes in hand with the concept of diminishing marginal utility. We prefer an assortment of goods as opposed to just all of one good or all of the other good. The higher budget you have the further right the indifference curve will shift. The furthest right indifference curve is optimal.

True, however in the interest of not confusing the OP, diminishing marginal utility explains why indifference curves are concave, not why they are negatively sloped.
hotnicey
Posts: 9
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11/13/2014 5:03:18 PM
Posted: 2 years ago
At 11/10/2014 2:57:46 PM, Benshapiro wrote:
Yeah it basically goes in hand with the concept of diminishing marginal utility. We prefer an assortment of goods as opposed to just all of one good or all of the other good. The higher budget you have the further right the indifference curve will shift. The furthest right indifference curve is optimal.

Thanks