Indifference curve

An indifference curve is the set of combinations of goods that give a consumer the same level of satisfaction. A map of such curves represents preferences across bundles.

Marginal rate of substitution: The rate at which a consumer is willing to exchange one good for another while maintaining the same satisfaction. It is the curve’s local slope, showing the trade-off between goods at each bundle.
Consumer preference: A ranking of possible consumption bundles according to how desirable they are to a consumer. Indifference means two bundles occupy the same rank in this ordering.
Budget constraint: The set of affordable consumption bundles given prices and a consumer’s income. The chosen bundle lies on the affordable boundary and a reachable preference curve.
Linear utility function: A utility function linear in goods, representing constant marginal rates of substitution between them. It yields straight indifference curves, unlike the usual bowed curves for imperfect substitutes.
Utility function: A function that assigns numerical values to alternatives in a way that represents preferences. Its level sets can be drawn as indifference curves.
Consumption bundle: A specified quantity of each good available to or chosen by a consumer. Each point on an indifference curve denotes one such bundle.
Consumer choice: The problem of selecting a most-preferred affordable bundle from available alternatives. The optimum is found by comparing the budget set with preference curves.
Leontief utility function: A utility function determined by the limiting quantity among goods consumed in fixed proportions. Its kinked level sets contrast with smooth curves often drawn for consumer preferences.
Monotonic preferences: Preferences under which having more of a good, with other goods unchanged, is preferred to having less. This assumption makes higher curves represent bundles preferred to lower ones.
Ordinal utility: A representation of preferences that preserves rankings but does not assign meaningful distances between satisfaction levels. The curve captures equal ranking; its utility number has no required absolute meaning.

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