Editing Indifference curve (section)

=== Examples of indifference curves ===
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File:Simple-indifference-curves.svg|Figure 1: An example of an indifference map with three indifference curves represented
File:Indifference-curves-perfect-substitutes.svg|Figure 2: Three indifference curves where Goods ''X'' and ''Y'' are perfect substitutes. The gray line perpendicular to all curves indicates the curves are mutually parallel.  
File:Indifference-curves-perfect-complements.svg|Figure 3: Indifference curves for perfect complements ''X'' and ''Y''. The elbows of the curves are [[collinear]]. The grey line shows the [[Income–consumption curve]] (the consumer theory equivalent to the [[Expansion path]]) of a series of [[Leontief utilities|Leontief utility curves]].
</gallery>

In Figure 1, the consumer would rather be on ''I<sub>3</sub>'' than ''I<sub>2</sub>'', and would rather be on ''I<sub>2</sub>'' than ''I<sub>1</sub>'', but does not care where he/she is on a given indifference curve. The slope of an indifference curve (in absolute value), known by economists as the [[marginal rate of substitution]], shows the rate at which consumers are willing to give up one good in exchange for more of the other good. For ''most'' goods the marginal rate of substitution is not constant so their indifference curves are curved. The curves are convex to the origin, describing  the negative [[substitution effect]]. As price rises for a fixed money income, the consumer seeks the less expensive substitute at a lower indifference curve. The substitution effect is reinforced through the [[income effect]] of lower real income (Beattie-LaFrance). An example of a utility function that generates indifference curves of this kind is the Cobb–Douglas function <math>\scriptstyle U\left(x,y\right)=x^\alpha y^{1-\alpha }, 0 \leq \alpha \leq 1</math>. The negative slope of the indifference curve incorporates the willingness of the consumer to make trade offs.<ref name="Silberberg"/>

If two goods are [[substitute good|perfect substitutes]] then the indifference curves will have a constant slope since the consumer would be willing to switch between at a fixed ratio. The marginal rate of substitution between perfect substitutes is likewise constant. An example of a utility function that is associated with indifference curves like these would be <math>\scriptstyle U\left(x,y\right)=\alpha x + \beta y</math>.

If two goods are [[complement good|perfect complements]] then the indifference curves will be L-shaped. Examples of perfect complements include left shoes compared to right shoes: the consumer is no better off having several right shoes if she has only one left shoe - additional right shoes have zero marginal utility without more left shoes, so bundles of goods differing only in the number of right shoes they include - however many - are equally preferred. The marginal rate of substitution is either zero or infinite. An example of the type of utility function that has an indifference map like that above is the Leontief function: <math>\scriptstyle U\left(x,y\right)= \min \{ \alpha x, \beta y \}</math>.

The different shapes of the curves imply different responses to a change in price as shown from demand analysis in [[consumer theory]]. The results will only be stated here. A price-budget-line change that kept a consumer in  equilibrium on the same indifference curve:
:in Fig. 1 would reduce quantity demanded of a good smoothly as price rose relatively for that good.
:in Fig. 2 would have either no effect on quantity demanded of either good (at one end of the [[budget constraint]]) or would change quantity demanded from one end of the [[budget constraint]] to the other.
:in Fig. 3 would have no effect on equilibrium quantities demanded, since the budget line would rotate around the corner of the indifference curve.{{refn|Indifference curves can be used to derive the individual demand curve. However, the assumptions of consumer preference theory do not guarantee that the demand curve will have a negative slope.<ref>{{cite book |last1=Binger |last2=Hoffman |year=1998 |title=Microeconomics with Calculus |edition=2nd |publisher=Addison-Wesley |location=Reading |isbn=0-321-01225-9 |pages=141–143 }}</ref>|group=nb}}