Indifference Curve

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Definition of 'Indifference Curve'

An indifference curve is a graph that shows all the combinations of two goods that give a consumer the same level of satisfaction. The curve is downward sloping because as you consume more of one good, you need less of the other to be satisfied.

The slope of the indifference curve tells us how much the consumer is willing to trade one good for another. The steeper the curve, the less willing the consumer is to trade. This is because the consumer values the two goods equally.

Indifference curves can be used to represent a consumer's preferences. By plotting the indifference curves for different goods, we can see how the consumer's preferences change. This information can be used to make predictions about how the consumer will behave in different market conditions.

Indifference curves are also used in welfare economics to measure the economic well-being of a consumer. The consumer's welfare is represented by the area under the indifference curve. This area represents the total amount of satisfaction that the consumer gets from consuming the two goods.

Indifference curves are a powerful tool for understanding consumer behavior. They can be used to make predictions about how consumers will behave in different market conditions and to measure the economic well-being of consumers.

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