An indifference curve shows all combinations of two goods that give a consumer the same level of satisfaction (utility). Because every point on one curve yields equal satisfaction, the consumer is indifferent among them — hence the name.

How it works

To stay on the same curve, a consumer who takes more of good X must give up some of good Y — so the curve slopes downward. The rate at which Y is sacrificed for one more unit of X is the Marginal Rate of Substitution (MRS).

As the consumer gets more X and less Y, X becomes relatively abundant and Y relatively scarce, so she will sacrifice less and less Y for each extra X. This diminishing MRS makes the curve convex to the origin.

Key properties

• Downward sloping — more of one good requires less of the other.
• Convex to the origin — because MRS diminishes.
• Higher curves = higher satisfaction — a curve farther from the origin is preferred.
• Two indifference curves never intersect — an intersection would mean one point gives two different satisfaction levels.

Special shapes

• Perfect substitutes → a straight-line curve (constant MRS).
• Perfect complements → an L-shaped curve (goods used in fixed proportion).

Quick example

A consumer is indifferent among these bundles of (X, Y):