Talk:Indifference curve

microeconomist's major ignorance

Independence of purchase choices from budget: When individual demand curve is aggregated to the group's the major assumption is made that consumers all spend the same fraction of their wealth on each commodity, no matter whether they are a pauper or a billionaire. This underlies the microeconomist's major ignorance of the distribution of wealth in society.

I removed this; an odd assumption is introduced, not based on the theory discussed in the article, and then it is used as argument against the theory. - Patrick 09:55 Mar 2, 2003 (UTC)

the assertion is correct its inclusion in thie article is misplaced--Jgard5000 (talk) 02:35, 25 September 2009 (UTC)jgard5000

assumetions section

User:67.42.28.222 Replaced the assumetions section from:

Evidence

Is it only 'economics' where a 'theory' can be described without any concern for references to empirical evidence? This 'theory' is fantasy. The mention of indifference curves being a 'straightforward' idea is equally laughable: it talks about 'satisfaction' as though this was something empirically measurable, as though satisfaction and utility were synonyms perhaps? Would a meal with MSG and Opium in it be of measurable satisfaction and would that equate with utility? What is utility? All we are dealing with here are tautologies and truisms, and the attempts of the confused to impose a systematic view on things.It is a terrible shame that these ideas have been allowed to propagate and infect the minds of decision makers. There should be no wonder we must suffer a financial crisi. 90.179.192.118 (talk) 19:56, 12 September 2009 (UTC)

Even though economics is a social science - a science of human behavior economists justify avoiding empirical research into human preferences and motives on the ground that people are bad to lie. therefore since human frailities complicate the math lets eliminate human behavior from the mix.--Jgard5000 (talk) 05:02, 21 September 2009 (UTC)jgard5000

Assumptions Original

These properties follow mathematically from the first three of the following list of assumptions. These assumptions, which are troublesome, are made in conceiving of indifference curves and demand functions:

Completeness: This assumption rests on the assertions that choice-makers have (1) infinite knowledge not just about the details of any apparent options, but about all (other) existing possibilities, and how much they would cost (including all implicit costs not reflected in the price), and (2) infinite knowledge about the set of factors which affect the personal satisfaction inherent in the option. This is thus subject to another selection problem: the total utility of a given choice depends on how many tangible and intangible factors one takes into account. Does one want to know how a commodity was made, who or what was destroyed by its production, or what the alternatives might have been, given that such knowledge will likely affect the object's desirability (utility)? Since not buying something but rather waiting for a future alternative (which might radically change the attractiveness of existing options) is always one option, the current utility is not even theoretically assessable. All these (thoroughly impossible) conditions would together mean that every pair of options has a unique ordering of utility.

Transitivity: Essentially, this says the pair ordering above extends to more than two options and is unique.

Non-satiation: This is the idea that people always want more --- not of something, but of everything and anything! This has elsewhere been called the philosophy of the cancer cell. Non-satiation is frequently relaxed when the specifics of the market show that this is the case.

Satiation: The marginal value a person gets from each commodity falls with the number of units. This is also called convexity. If one has much of something, one is not very happy with even more (but, according to the previous assumption, still a little).

Robotic behaviour: This seems separate from the other "rationality" criteria above. This is the assumption that a consumer not only can order options according to preference, but acts on such a utility-based rationale rather than, say, primarily out of habit or subject to an influence like "training" (e.g. due to marketing). In other words, the relationship between "utility" and effective "preference" is quietly assumed, in contradiction to what any psychologist or advertising agent knows. In reality, people making choices are well aware that they are not acting on the sum of their knowledge, but rather on habit, bias, and impulse as well. Consumers do not make their purchase decisions all at once, and thus do not have a "budget line" for most decisions. This "irrationality" applies to mass behaviour (subject to "fashion") even more than it does to individuals. Note however that a preference based on habit, bias or fashion does not necessarily contradict the theory.

Independence of budget and desires: It is assumed that consumers do not have control over the amount of their income. In reality, many people are in a position to earn extra income when they need to purchase something big, and to emphasize work which does not earn monetary compensation when they have enough.

Independence of purchase choices from non-monetary choices: More generally, since the given formalism is used to represent money-transactions only --- i.e. in the context of a market --- there is an assumption that a consumer's set of choices which concern monetary costs is entirely independent from the set of choices which do not have any cost involved. Instead, humans are social beings and thus use heuristics such as morality and social influence to make these decisions. If this is true, the rational choice theory cannot be repaired with any perturbation; it is simply inapplicable.

with:

Note that perfect knowledge means that in deciding whether to buy a beer a consumer weighs all the benefits and costs to be derived from the consumption of the beer present and future. He would take into consideration what effect if any the present consumption of a beer would have 30 years in the future. And in considering whether to consume a beer he would consider the benefitsi of all other optional uses of his time and money. Of course, one might say that the smartest thing to do would not be to not spend your time thinking about what effect the present consumption of a beer will have 30 years from now or 1000 years from now. Of course an assumption of neoclassical theory is that information costs are zero. So calculating the present value of the future benefits of chugging a Pabst Blue Ribbon is no problem. --Jgard5000 (talk) 04:58, 21 September 2009 (UTC)jgard5000

Note that the numbers associated with indifference curves are indexes they have no cardinal implications, Economists could label the curves blue, red and green but that would slightly complicate the mathemaical analysis.--Jgard5000 (talk) 12:45, 24 September 2009 (UTC)jgard5000

67.42.28.222's Assumptions

The first three assumptions are necessary, the next two are convenient.

Completeness: Consumers know their individual preferences; they can choose between any consumption bundle X and consumption bundle Y. They know either that X is preferred to Y, Y is preferred to X, or that they are indifferent between X and Y.

Transitivity: If a consumer prefers bundle X to bundle Y, and prefers bundle Y to bundle Z, then he must prefer bundle X to bundle Z.

Continuity: This means that you can choose to consume any amount of the good. For example, I could drink 11 mL of soda, or 12 mL, or 132 mL. I am not confined to drinking 2 liters or nothing.

Non-satiation: This is the idea that more of any good is always preferred to less.

Convexity: The marginal value a person gets from each commodity falls relative to the other good. In a two good world, if a consumer has relatively lots of one good he would be a happier with a little less of that good and a little more of the other.

67.42.28.222 is certainly correct, I am not sure if some of the information in the original should be readded. Jrincayc 15:02, 19 Mar 2004 (UTC)

incorrect ???

I removed the incorrect phrase in the following paragraph. Both ordinal and cordinal approaches to utility are theories. I do not think the word "incorrect" or "wrong" should be placed upon a theory unless proven so. --Voidvector 18:41, Nov 9, 2004 (UTC)

History

The theory of indifference curves was developed by Edgeworth, Pareto and others in the first part of the 20th century. The theory was developed so that analysis of economic choices could be based upon preferences which can be observed and compared (ordinal utility), rather than the older concept of utility which was based on the incorrect and unrealistic assumption that the satisfaction derived from economic choices could be measured (cardinal utility).

diff== Positive Indifference curves ==

• A special case of Indifference curve slopes upward from left to right (positive slope) for goods known as "Giffen goods". Giffen goods (named after Robert Giffen) are inferior goods that increase in demand as their price increases. Giffen's example was of demand for bread by the poor which increases as the price of bread increases because the additional cost displaces the purchase of more expensive foods in their limited budget.

The indifference curve for giffen goods still have negative slope. They just are scrunched up in a particular way. Positive slopes on indifference curves imply that one of the 'goods' is a bad, since the person would trade less of good y for less of good x. So say I have pizza and garbage. A positive indifference curve example would be I would give up 3 pizzas and 5 bags of garbage and still be just as happy. Jrincayc 13:44, 9 Dec 2004 (UTC)

Instead of removing that, can you please add a section for showing behaviour of indifference curve in case of Giffen goods. pamri 07:51, 10 Dec 2004 (UTC)

This article needs renaming or a thorough rearrangement

The title is "Indifference curves." But the formal treatment comes first. Who's the audience for this, first-year grad students? Probably, b/c nobody has complained. But who wants to use this article as a link to other articles? Possibly also nobody. Wiki readers would be better served with the curves coming first and with a ground-up exposition. Thx. Thomasmeeks 07:33, 12 August 2006 (UTC)

Merci! Or is it, "Mercy!" Thomasmeeks 19:00, 5 September 2006 (UTC)

I Agree

Surely, the typical person who comes to Wikipedia to read about indifference curves will require some kind of non-technical introduction. Will continue work on this over the next day or two. UbiquitousUK

Why have a statment of the formal preference relationships when the purpose is to replicate the properties of the real number system so that the math will work. Does an encyclopedic article really need to include that?--Jgard5000 (talk) 00:21, 30 September 2009 (UTC)jgard5000

Inaccurate

The article treats indifference curves as a microeconomic theory. It is a microeconomic theory, but it's worth noting that they they are used extensively in macroeconomic modeling as well, with the AS/AD model. The article's emphasis on microeconomics is misleading at best, inaccurate at worst. Zenwhat (talk) 09:58, 9 January 2008 (UTC)

An indifference curve is not a "microeconomic theory" in ordinary usage. Rather, indifference-curve analysis is commonly used in the part of economic theory described as microeconomic. Historically, modern macroeconomics was criticized for not spelling out micro foundations. A tool commonly described as microtheoretic does not preclude a macro use. The article as it stands is not inaccurate. Rather than inserting an arguably inaccurate or overly-general template in the article, why not remedy the alleged defect ("incompleteness"?), preferably with a scholarly reference to support the point about macro usage? --Thomasmeeks (talk) 18:47, 17 January 2008 (UTC)

perfect substitutes: constant slope vs. parallel lines

Indifference curves are not necessarily lines, as shown in first graphic on the page, so probably best to avoid word 'line' if possible. Also see line where it says that a line must be perfectly straight, which is not necessarily the case. Although constant slope would seem to imply parallel lines, you can also have goods that are substitutes only along some sub-range of their indifference curve. In that case, the indifference curves would have constant slope on that subrange, but not elsewhere, hence it is not a line. So although this section describes perfect substitutes putting this in terms of parallel lines seems potentially misleading. Finally, from the section entitled "Perfect Substitutes" in the closest reference I have at hand, "Intermediate Micro Economics" by Hal Varian 7th edition page 39, it says

"The important fact about perfect substitutes is that the indifference curves have a constant slope."

This is despite the fact that in the accompanying figure and previous text, the indifference curves are shown as parallel lines. Finally, although a technicality, if one did want to say line, it would have to be "line segment" in this case. More confusion. So how about we go back to "constant slope." (Econotechie (talk) 19:36, 19 September 2008 (UTC))

Perfect Complements

Am i wrong or does the diagram mean that a person would be indifferent between consuming two left shoes and two right and two left shoes and one quintillion right shoes?--Jgard5000 (talk) 04:37, 21 September 2009 (UTC)jgard5000

You're right, the (quintillion-2) extra right shoes wouldn't affect utility. CRETOG8(t/c) 12:01, 21 September 2009 (UTC)

I think i am partially right or right in a resticted sense. Perloff provides the answer to this issue on page 72 of Microeconomics, theory and applications with calculus ISBN 0-321-27794-5. The conumer would consume only the corner bundles - she would only consume pairs of shoes - a combination like 2 - quintillion would not be possible - so i'm wrong.--Jgard5000 (talk) 13:14, 21 September 2009 (UTC)jgard5000

I suppose it depends on what you mean by "consume" exactly. If a quintillion right shoes were (due to volume discounting) cheaper than 2 right shoes, the consumer would purchase the quintillion shoes. CRETOG8(t/c) 16:08, 21 September 2009 (UTC)

By consume I mean that the consumer would instantaneously derive all benefits from the shoe present and future.--Jgard5000 (talk) 21:12, 22 September 2009 (UTC)Jgard5000

Assumptions

The assumptions have nothing to do with reality they simply allow economist to use calculus in their analysis. They are a restatement of the properties of the real number system.--Jgard5000 (talk) 04:41, 21 September 2009 (UTC)jgard5000

Mutually Parallel

No problem with statement - all curves would be parallel - however the graph makes it appear as if the distance between the curves is of some consequence which i don't think is correct but i have been wrong before.--Jgard5000 (talk) 13:26, 21 September 2009 (UTC)jgard50000

if one tries to construct a social indifference curve map intersecting indifference curves are a certainty.--Jgard5000 (talk) 18:16, 25 September 2009 (UTC)jgard5000

The Crux of the Problem

The problem with traditional consumer theory is not in the derivation of individual demand curves using the assumptions of consumer preference theory. As Keen. an unrelenting critic of traditional theory has said, "“the economic model of how an individual [maximizes utility] is intellectually watertight.” The problem is aggregating individual indifference curve, demand functions or utility functions to derive a market or aggregate demand function. In order, to sum individual demand functions to obtain a market demand functions requires two additional "strong" assumptions - everyone has the same tastes and that "each person’s taste remain the same as income changes so each additional income is spent exactly the same way as all previous dollars." As Keen notes, the first assumption amounts to assuming that there is a single consumer the second that there is a single good. The implications for traditional economics you cannot draw conclusions about social welfare. Now Keen is not a mainline neoclassical economist. In fact, he has been unrelenting in his criticism of the neoclassical school. However, the basis of his criticisms should not be dismissed. In fact, the summation of his criticism that traditional economics has little to say concerning aggregate demand is earily similar to the comments of Varian and Kreps who are members in good standing of the neoclassical school. Apparently, the word has not filtered down to the foot soldiers - the economists who write principles and intermediate text. --Jgard5000 (talk) 00:56, 24 September 2009 (UTC)jgard5000

More is better

Non satiation among other things means that more is better. But it is more than that - it means more is always better. If you drew a total utility function i think it would mean that eventually the curve would increase at a decreasing rate but it would never reach a maximum value and it certainly would not reach a stage of decreasing utility, You could never eat enough pizza to get sick.--Jgard5000 (talk) 01:37, 27 September 2009 (UTC)jgard5000 You could experience diminishing marginal utility but not diminishing utility.

Assumptions (redux)

Since there now appears to be two competing sections in the articles, I have removed what I felt to be the weak section:

Extended content

Let a, b, and c be bundles (vectors) of goods, such as (x, y) combinations above, with possibly different quantities of each respective good in the different bundles. The first assumption is necessary for a well-defined representation of stable preferences for the consumer as agent; the second assumption is convenient. Rationality (called an ordering relationship in a more general mathematical context): Completeness + transitivity. For given preference rankings, the consumer can choose the best bundle(s) consistently among a, b, and c from lowest on up. Continuity: This means that you can choose to consume any amount of the good. For example, I could drink 11 mL of soda, or 12 mL, or 132 mL. I am not confined to drinking 2 liters or nothing. See also continuous function in mathematics. Of the remaining properties above, suppose, property (5) (convexity) is violated by a bulge of the indifference curves out from the origin for a particular consumer with a given budget constraint. Consumer theory then implies zero consumption for one of the two goods, say good Y, in equilibrium on the consumer's budget constraint. This would exemplify a corner solution. Further, decreases in the price of good Y over a certain range might leave quantity demanded unchanged at zero beyond which further price decreases switched all consumption and income away from X and to Y. The eccentricity of such an implication suggests why convexity is typically assumed.

I don't think there's anything in there which isn't in the rest of the article, but I'm open to ideas to the contrary. Regards, - Jarry1250 ^{[Who? Discuss.]} 14:30, 20 December 2010 (UTC)

Opening paragraph

Hi - someone's already mentioned it, but I don't know if anything's been done: the opening paragraph is still oddly difficult to understand, and I wonder if it could be rewritten to make it a little more accessible. iPhil (talk) 23:37, 14 November 2013 (UTC)

Yes, given it's such a simplistic concept, it wasn't clear to me if it was using economic jargon that hadn't been defined or wikilinked. 'Bundle' of what? The accompanying image is fairly clear, but the first sentence dissonantly described the curve itself as a 'graph', linking to graph of a function, when a curve could be based on empirical data and it's hard to see how it can be a continuous function when goods cannot be infinitely subdivided. Also confusing was the choice of preposition in 'That is, at each point on the curve, the consumer has no preference'. Also 'One can equivalently refer to each point on the indifference curve as rendering the same level of utility' is hard to understand when we're considering 'equivalent' points, and strict equivalence is dubious given that a few sentences later the Geanakoplos point questions the usefulness of the notion of utility. After my edit, the first para is still a bit repetitive, perhaps the result of multiple edits. --Cedders^tk 21:32, 9 October 2016 (UTC)

Negative transitivity

I have the idea what's said about 'negative transitivity' is not correct. The article states for a relation R to be negative transitive:

$x\not Ry\Rightarrow x\not Rz\lor z\not Ry$.

This is equivalent to

$xRz\land zRy\Rightarrow xRy$,

i.e. (normal) transitivity.

I know negative transitivity to be:

$x\not Rz\land z\not Ry\Rightarrow x\not Ry$

or equivalently

$xRy\Rightarrow xRz\lor zRy$.

Madyno (talk) 09:38, 31 May 2017 (UTC)

Can't understand.

I am not an economist, though I am good at math. Could you, please, give some simple example with apples and pears? 85.193.228.103 (talk) 13:23, 8 December 2020 (UTC)

Okay, I no longer need it. A short video on YouTube proved to be enough for me. As someone noticed, economics is just simple concepts that are explained with complex graphs and convoluted jargon. BTW, the first graph is misleading. "'Good X"' should be replaced with "Quantity of good X", and respectively for the vertical axis. 85.193.228.103 (talk) 14:57, 8 December 2020 (UTC)