Question

What information is contained in an indifference curve? Why are such curves (a) downward sloping and (b) convex from the origin? Why does total utility increase as the consumer moves to indifference curves farther from the origin?

Answer 1

Indifference curve shows the combinations of two goods that yield the same level of satisfaction to the consumer. The consumer is indifferent between any bundles on an indifference curve as each bundle gives the same level of satisfaction.

Indifference curve is downward sloping because in order to obtain one more unit of a good(X), the consumer has to give some quantity of the other good(Y) to maintain the same level of satisfaction.

Indifference curve are convex to the origin because the rate at which the consumer is willing to sacrifice one good for another is continuously diminishing, that means the consumer becomes more and more reluctant to sacrifice good X for an additional unit of good Y and at some point there won't be any substitution between theses two goods. This is called the law of diminishing marginal rate of substitution.

Higher indifference curve represents higher level of satisfaction for the consumer as higher indifference curve has greater quantities of both the commodities (X and Y) than a lower indifference curve. Since the consumer gets more, his satisfaction level increases as consumer preference is monotonic and thus total utility increases as consumer moves to indifference curve farther from the origin.