An indifference curve is a graph showing different combinations of two goods that provide a consumer with the same level of satisfaction or utility.

Every point on the curve represents a mix of two goods that the consumer enjoys equally. Because the consumer values these combinations exactly the same, they are considered indifferent between them.

Key characteristics of indifference curves:

• Downward sloping: To stay equally satisfied, if a consumer gets more of one good, they must give up some of the other.
• Convex to the origin: The curve bows inward because of the diminishing marginal rate of substitution; consumers value an extra unit of a good less when they already have plenty of it.
• Higher curves indicate higher utility: Curves further from the start of the graph represent more total satisfaction.
• Never intersect: If two curves crossed, it would create a logical contradiction in the consumer’s preferences.
• Do not touch the axes: It is assumed that consumers generally want some amount of both goods.

Marginal Rate of Substitution (MRS):

This is the amount of one good a consumer is willing to give up to get one extra unit of another good while keeping their total satisfaction the same.