Consumer Preferences and Indifference Curves

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In order to understand consumer preferences, it is important to understand what a market basket is. It is usually referred to represent a group of items. A market basket is a list with specific quantities of one or more goods. The theory of consumer behaviour begins with three basic assumptions about consumer’s preferences for one market basket versus another.

An indifference curve represents all combinations of market baskets that provide a consumer with the same level of satisfaction. A consumer can always indicate either a preference for one market basket over another or indifference between the two.

The IC slopes downwards from left to right. Indifference maps refers to a set of indifference curves corresponding to different income levels of the consumer. Basically it is a set of indifference curves that describes a person’s preferences. Each indifference curve in the map shows the market baskets among which the person is indifferent. Another important property of an IC which must be noted is that indifference curves cannot intersect.