ShmoopTube

Where Monty Python meets your 10th grade teacher.

Search Thousands of Shmoop Videos

Econ: What is an Indifference Curve? 1 Views


Share It!


Description:

What is an Indifference Curve? An indifference curve is a graphic depiction of a consumer’s assumed baseline indifference between two disparate goods that deliver equivalent customer satisfaction and use. As income rises or other factors are introduced, the indifference curves attempt to chart consumer choice preferences.

Language:
English Language

Transcript

00:00

And finance Allah shmoop what is an indifference curve And

00:07

no it doesn't have to do with a lazy pitcher

00:10

or an architect You know who just doesn't care about

00:12

the building anymore because he's about to get fired It

00:15

has to do with how people make consumer decisions like

00:18

what products they buy like what they choose and then

00:21

care about and or what they're indifferent to Well the

00:23

indifference curves graphs a choice between two products except well

00:27

you just don't care what combination of the products you

00:30

get You like the choice is equally when combined you

00:33

would take a bunch of different combos and not notice

00:36

the difference in value to you lungs You have that

00:39

combo or bundle The total doesn't really matter to your

00:43

indifferent to it right So not satisfied with a simple

00:46

shrug emoji economists have decided this kind of indifference requires

00:50

mathematical rigor and a graphing calculator hints thie indifference curve

00:54

and indifference Curve is a graph It shows the Siri's

00:56

of combinations of goods So here we go Example time

01:02

once again no one invited you out this Friday night

01:05

So you're gonna go to the store and buy snacks

01:07

for your lonely Netflix binge Best You're going to go

01:11

buy some bags of caramel corn and a bunch of

01:13

packages of Twizzlers You graff your choices on an indifference

01:16

curve Each point on the curve represents a combination of

01:20

the volume of each of these sugary delights that makes

01:23

you equally happy Well the X axis represents an amount

01:26

of caramel corn The Y axis represents an amount of

01:29

Twizzlers The curve consists of all the possible combos of

01:32

two goods that you find equally app healing It's the

01:35

line of Well I don't care You have no preference

01:38

about the points on that line All the same Completely

01:41

indifferent So three bags of caramel corn and two packs

01:44

of Twizzlers mean the same to you as two bags

01:47

of caramel corn and four packs of Twizzlers your indifferent

01:50

or one bag of caramel corn and six packs of

01:52

Twizzlers You're indifferent Or maybe you'll just get eight packs

01:56

of Twizzlers and skip the caramel corn altogether You'll get

01:59

none of it You're indifferent All of these packages mean

02:02

the same to you Same value Same You know food

02:05

is love and happiness kind of vibe Pull out some

02:08

graphing paper while you're standing in the aisle of the

02:10

convenience store Ignore the strange looks you get Yes we

02:12

do that all the time Grafting indifference Curve on the

02:15

curve Measures utility the amount of value you get out

02:18

of the combo twizzlers and caramel corn A point above

02:20

the curve is more utility So five bags of caramel

02:23

corn and seven packages of Twizzlers Well much better You

02:26

Khun Binge all night and into tomorrow but that's off

02:29

of that indifference curve A point below the curve is

02:32

less utility or less value to you One bag of

02:35

caramel corn in one bag of Twizzlers Yeah not enough

02:38

to get you through a single episode of House hunters

02:40

much less utility or value They're not enough for the

02:43

amount of Netflix you'll be binging upon but everything along

02:46

the curve provides the adequate utility for what you're trying

02:48

to do Enough food to get you through your sad

02:51

Friday night of Netflix ng all the points on the

02:54

curve providing the same amount of utility or value so

02:57

How do you decide What combo Tobi Well if all

03:00

the combinations are the same to you how do you

03:02

choose which valuer Which combo value to go with And

03:05

why are we doing this all again anyway Why graff

03:08

your indifference Well the best way to use an indifference

03:10

curve is to combine it with a budget constraint line

03:14

A budget constraint represents the combinations of the two products

03:17

for which you have enough money to buy Set another

03:20

way Graphing A budget constraint between two items shows all

03:23

the possible combinations that you can afford But once you

03:26

get to the store you see what a package of

03:28

caramel corn is A three dollars fifty cents There all

03:31

the package Twizzlers is on sale for a buck You've

03:33

got ten dollars in your pocket so check the points

03:36

on your indifference Curve Three bags of caramel corn and

03:39

two packs of Twizzlers would cost you twelve fifty Yeah

03:41

you don't have that's more than your budget Two packs

03:43

a caramel corn in four bags of Twizzlers When that

03:46

costs eleven dollars it's a buck too much but one

03:49

bag Caramel corn and six packs of Twizzlers Well that's

03:51

nine fifty It's under your ten dollars budget and I

03:54

guess that's what you'll buy Well on a graph you

03:56

figure out the indifference curve all combinations that bring you

03:59

equal value All these things are all equal to you

04:02

in value And then you figure out your budget constraint

04:05

curve all the combinations that you can afford to buy

04:08

Well the point where the budget constraint line or restraint

04:11

line meets the indifference Curve Boom That's the sweet spot

04:14

That combo is the one to buy right here Now

04:18

you just have to pick what you want to watch

04:20

Another indifference curve sets in as you scroll endlessly through

04:23

York Netflix options there Yeah you've got a rough life 00:04:26.423 --> [endTime] there Well you could just chill Yeah

Up Next

GED Social Studies 1.1 Civics and Government
39794 Views

GED Social Studies 1.1 Civics and Government

Related Videos

Fake News
11938 Views

How do you tell fake news from real news?

Finance: What is Bankruptcy?
260 Views

What is bankruptcy? Deadbeats who can't pay their bills declare bankruptcy. Either they borrowed too much money, or the business fell apart. They t...

Finance: What is a Dividend?
1777 Views

What's a dividend? At will, the board of directors can pay a dividend on common stock. Usually, that payout is some percentage less than 100 of ear...

Finance: How Are Risks and Rewards Related?
589 Views

How are risk and reward related? Take more risk, expect more reward. A lottery ticket might be worth a billion dollars, but if the odds are one in...