The Art of Drawing Indifference Curves
Drawing indifference curves is a skill that many would have to master in one way or another. It is not something that comes naturally to most people, but it is something that can be learned and perfected with practice. Indifference curves are graphs that demonstrate utility, or the satisfaction that a consumer derives from different combinations of goods. Drawing them correctly and accurately is paramount in order to derive useful information from them.
Getting the Basics Right
The most basic principle of indifference curves is that it illustrates all the possible combinations of goods between two given points. To draw an indifference curve, all you need are some horizontal and vertical axes. On the x-axis, denote quantity of one good and on the y-axis denote quantity of the other. Most importantly, remember, that an indifference curve should always slope downwards; this is because of the law of diminishing marginal utility.
The Nine Steps to Drawing an Indifference Curve
Drawing an indifference curve is not a complicated process and can be broken down into 9 simple steps. Here are the steps:
- Draw the horizontal and vertical axes with the given goods on each axis.
- Take any point on the x-axis and draw a diagonal line upward from it. Such a line should intersect the y-axis.
- Repeat step 2 with a point on the y-axis, but this time draw a diagonal line downwards.
- Make sure that the two diagonal lines intersect at one point.
- This point will be the starting point of your indifference curve (you can also start at any other point).
- Once you have identified the starting point, draw a smooth curve that goes through the starting point and any other points on the x- and y-axis.
- This curve should have a downward slope throughout.
- Use the downward slope to create a consistent curve throughout.
- Repeat the earlier steps to draw the second, third and any other indifference curves.
The Important Rules
There are some important rules to remember when drawing indifference curves. First, the slope of indifference curves should always be negative or downward sloping. This is because of the law of diminishing marginal utility, which states that the satisfaction of goods should decrease as more is consumed. Second, indifference curves should never cross; this is because if they did, the points on that curve would provide the same level of utility. Third, indifference curves should never bend backwards; this is because it would not be consistent with the law of diminishing marginal utility.
Using Indifference Curves
Once you have drawn the indifference curves, you can use them in a variety of ways. For example, by examining the different curves you can determine the optimal combinations of goods to achieve the highest level of utility. You can also use them to determine the amount of one good that an individual would need to give up in order to gain a certain amount of another good, known as the substitution effect. Additionally, you can also calculate the compensating variation, which is the amount of one good that an individual would need to gain in order to maintain the same level of utility.
Conclusion
Drawing indifference curves can be an intimidating task, but it is a skill that can be learned with practice. By following the steps outlined here, you can draw indifference curves quickly and effectively. Once you have done so, you can then use those indifference curves to calculate important economic concepts such as the substitution effect and compensating variation, giving you a better understanding of how consumers make decisions in the marketplace.
