Utility: An Alternative
Way to Represent a Consumer's Preferences
We have used indifference curves to represent the consumer's preferences. Another common way to represent preferences is with the concept of utility. Utility is an abstract measure of the satisfaction or happiness that a consumer receives from a bundle of goods. Economists say that a consumer prefers one bundle of goods to another if the first provides more utility than the second. Indifference curves and utility are closely related. Because the consumer prefers points on higher indifference curves, bundles of goods on higher indifference curves provide higher utility. Because the consumer is equally happy with all points on the same indifference curve, all these bundles provide the same utility. Indeed, you can think of an indifference curve as an "equal-utility" curve. The slope of the indifference curve (the marginal rate of substitution) reflects the marginal utility generated by one good compared to the marginal utility generated by the other good.
When economists discuss the theory of consumer choice, they might express the theory using different words. One economist might say that the goal of the consumer is to maximize utility. Another might say that the goal of the consumer is to end up on the highest possible indifference curve. In essence, these are two ways of saying the same thing.
typically, the indifference curves are bowed inward, but not so bowed as to become right angles.
I QUICK QUIZ: Draw some indifference curves for Pepsi and pizza. Explain the four properties of these indifference curves.
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