Indifference Curve
No, it doesn't have to do with a lazy pitcher or an architect who's about to get fired. It has to do with how people make consumer decisions. Like what products they buy.
The indifference curve graphs a choice between two products...except you just don't care what combination of the products you get. You like the choices equally. You'd take a bunch of different combos and not notice the difference...it doesn't really matter to you.
You're indifferent.
Not satisfied with a simple shrug emoji, economists have decided this kind of indifference requires mathematical rigor and a graphing calculator. Hence, the indifference curve.
An indifference curve is a graph. It shows a series of combinations of goods.
Example. Once again, no one invited you out this Friday night...so you're going to the store to buy snacks for your lonely TV binge-fest.
You're going to buy some bags of caramel corn and a bunch of packages of Twizzlers. Graph your choices on an indifference curve. Each point on the curve represents a combination that makes you equally happy. The X axis represents an amount of carmel corn. The Y axis represents an amount of Twizzlers.
The curve consists of all the possible combos of two goods that you find equally appealing. It's the line of "I don't care." You have no preference about the points on that line. All the same. Completely indifferent. So, three bags of caramel corn and two packs of Twizzlers mean the same to you as two bags of caramel corn and four packs of Twizzlers. Or one bag of caramel corn and six packs of Twizzlers. Or maybe you'll just get eight packs of Twizzlers and skip the caramel corn altogether.
It's all the same to you. Pull out some graphing paper while you’re standing in the aisle at the convenience store. Ignore the strange looks you get. Graph the indifference curve. The curve measures utility: the amount of value you get out of the combo of Twizzlers and carmel corn. A point above the curve is more utility...so five bags of caramel corn and seven packages of Twizzlers. Much better...you can binge all night and into tomorrow.
A point below the curve is less utility. One bag of caramel corn and a bag of Twizzlers. Not enough to get you through a single episode of House Hunters. Much less utility there...not enough for the amount of TV you plan to watch. But everything along the curve provides the adequate utility for what you are trying to do. Enough food to get you through your sad Friday night of TV watching. All the points on the curve providing the same amount of utility...the same value.
So how do you decide what combo to buy? If all the combinations are the same to you, how do you choose which one to go with? And why are we doing all this again, anyway? Why graph your indifference? Well, the best way to use an indifference curve is to combine it with a budget constraint line.
A budget constraint represents the combinations of the two products for which you have enough money to buy. Said another way: graphing a budget constraint between two items shows all the possible combinations you can afford. Once you get to the store, you see that a package of caramel corn is $3.50, while a package of Twizzlers is on sale for $1. You've got $10 in your pocket. So check the points on your indifference curve.
Three bags of caramel corn and two packs of Twizzlers would cost you $12.50. More than your budget. Two bags of caramel corn and four bags of Twizzlers costs $11. Still too much. But one bag of caramel corn and six packs of Twizzlers. That's $9.50. Under your $10 budget. That's what you'll buy.
On a graph, you figure out the indifference curve, all combinations that bring you equal value. And then you figure out your budget restraint curve, all the combinations that you can afford to buy. The point where the budget restraint line meets the indifference curve. Boom! The sweet spot.
That combo is the one to buy. Now you just have to pick what you want to watch. Another indifference curve sets in as you scroll endlessly through your options. Yeah. You’ve got a rough life.