Types of indifference curves

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Types of indifference curves발음듣기

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I've been drawing my indifference curves to look something like this.발음듣기

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That's the vertical axis, that's one good.발음듣기

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So this is the quantity of Good A. This is the quantity of Good B.발음듣기

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And I've been drawing the indifference curves like this.발음듣기

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So it might look like that.발음듣기

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That's one indifference curve.발음듣기

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Then another indifference curve would look like that.발음듣기

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And I could keep drawing indifference curves.발음듣기

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And this is what an indifference curve would look like for two normal goods.발음듣기

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Let me write that down.발음듣기

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These are normal goods.발음듣기

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And the reason why normal goods indifference curves would look like that are when I'm trying to figure out the combinations of two normal goods.발음듣기

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Because if I have a lot of one good - so at this point right over here I have a lot of Good A and I have very little of Good B - I would be willing to trade off a lot of A to get one extra of B.발음듣기

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But if all of a sudden I have a lot of B and less A, I would be willing to trade off very little A to get an incremental B.발음듣기

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So that's why we have kind of this inward bow-shaped curve right over here.발음듣기

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Or you could - mathematically it looks like it's part of a hyperbola.발음듣기

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And so that's what "normal goods" - indifference curves, if we were trading off between normal goods, would look like.발음듣기

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Now let's think about the indifference curve - so it would be this kind of curved thing.발음듣기

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The marginal rate of substitution would constantly be changing.발음듣기

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Now let's think about different types of goods.발음듣기

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Let's say that this is the quantity of $5 bills.발음듣기

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And let's say this is the quantity of $10 bills.발음듣기

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$10 bills.발음듣기

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And we're talking about the actual - the good now is actually the dollar bills.발음듣기

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So let's say that this right over here is ten $5 bills.발음듣기

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Well, that's 50 bucks. I'd be indifferent between that and five $10 bills.발음듣기

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This is five right over here.발음듣기

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And any point in between I would be indifferent because I'm always willing to trade off two $5 bills for one $10 bill.발음듣기

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So it would look - my indifference curve would be linear in this case.발음듣기

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My indifference curve would be linear.발음듣기

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So, no matter what, on this indifference curve I'm always willing.발음듣기

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If I want to get one extra $10 bill I'm always willing to give up two $5 bills, which makes complete sense.발음듣기

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Because two $5 bills are completely equivalent to one $10 bill.발음듣기

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Now we could take it to another extreme: let's say I have an indifference - let me draw the quantity of, I don't know, the quantity of M&M's.발음듣기

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Let's say red M&M's.발음듣기

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And I should have done that in red, but I won't.발음듣기

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And let's say this is the quantity of blue M&M's.발음듣기

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And let's say that I actually am indifferent between red and blue M&M's. Some people aren't.발음듣기

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Red M&M's and blue M&M's.발음듣기

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So having 10 red M&M's to me is completely equivalent to having 10 blue M&M's.발음듣기

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I'm willing to trade them off one for one. I don't care. I get the same total utility.발음듣기

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I get the same total utility.발음듣기

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So in this case, assuming that I really don't care the color of my M&M, I am completely indifferent as I swap them out.발음듣기

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And so this is a case of perfect substitutes.발음듣기

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Perfect substitutes.발음듣기

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Now, I'd always be happy to have more M&M's. So another indifference curve might look something like this.발음듣기

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But it's always going to have a slope of negative one.발음듣기

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I'm always giving up one red M&M to get one blue M&M, then I would be indifferent.발음듣기

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And likewise over here you could have another indifference curve between $5 bills and $10 bills that looks like this.발음듣기

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But the slope would be the exact same thing.발음듣기

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Now, the last situation I want to think about is what we'll call perfect complements.발음듣기

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So, goods that if you have one of them you really need the other one.발음듣기

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Otherwise one of the two is somewhat useful.발음듣기

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And maybe the most pure version of perfect complements - let me write it over here.발음듣기

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So let's say this is the quantity of Right shoes and this is the quantity of Left shoes.발음듣기

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So obviously, if we're just talking about just one pair, you have one of each.발음듣기

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Now, do you really care if you get more left shoes?발음듣기

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No. You have the exact same preference.발음듣기

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It doesn't really change your life.발음듣기

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You have the same total utility.발음듣기

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In fact it might even be negative, because you have to store them all.발음듣기

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But let's just assume you have the same total utility and you don't get any benefit of having those spare shoes, in case your shoe gets destroyed or anything like that.발음듣기

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In terms of what you can get out of it, what you can wear, you get the same utility.발음듣기

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And so you're really indifferent, no matter how many extra left shoes someone gives you.발음듣기

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And you'd also be indifferent no matter how many extra right shoes someone gives you.발음듣기

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Now, you would be happier if you had maybe two right shoes and two left shoes, because now you have two pairs.발음듣기

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So this would be another indifference curve.발음듣기

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And once again, if you have two right shoes you don't really care how many more than two left shoes you get.발음듣기

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And if you have two left shoes you really don't care how many more than two right shoes you get.발음듣기

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This indifference curve in green is clearly preferable to the one in white, but along each indifference curve it doesn't benefit you to have three left shoes and only two right shoes.발음듣기

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So this is what perfect complements would look like.발음듣기

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This is perfect substitutes.발음듣기

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And this is normal goods.발음듣기

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