Question

Draw figures that show your indifference curves for the following pairs of goods: \(\bullet\)Right gloves and left gloves \(\bullet\)Coca-Cola and Pepsi \(\bullet\)Desktop computers and laptop computers \(\bullet\)Strawberries and ice cream

Short answer

Right gloves and left gloves: L-shaped curves. Coca-Cola and Pepsi: Straight lines. Desktop and laptop computers, and strawberries and ice cream: Convex curves.

Step-by-step solution

Title - Understand Indifference Curves

Indifference curves represent combinations of two goods that provide the same level of utility to an individual. When drawing these curves, assume that the individual is indifferent between any combination of goods along the curve.

- Right Gloves and Left Gloves

For right gloves and left gloves, an individual needs an equal number of each to gain utility (a pair requires both, and additional pairs do not increase utility without the matching glove). Hence, the indifference curves for right gloves and left gloves are L-shaped, reflecting perfect complements. Plot right gloves on the x-axis and left gloves on the y-axis. The curve will be L-shaped, starting from the origin and moving equally along both axes.

- Coca-Cola and Pepsi

Coca-Cola and Pepsi are perfect substitutes for many people. This means the indifference curve is a straight line with a slope of -1, representing that an individual is willing to substitute one for the other in equal measure. Plot Coca-Cola on the x-axis and Pepsi on the y-axis.

- Desktop Computers and Laptop Computers

For desktop and laptop computers, an individual might have a preference but can substitute one for the other based on relative prices and availability. The indifference curve will be convex to the origin, reflecting diminishing marginal rates of substitution. Plot desktop computers on the x-axis and laptop computers on the y-axis.

- Strawberries and Ice Cream

Strawberries and ice cream are complementary goods that people consume together, but not in fixed proportions. The indifference curves will be convex to the origin, but less steep compared to desktop and laptop computers, reflecting a balanced but flexible consumption. Plot strawberries on the x-axis and ice cream on the y-axis.

Key concepts

Perfect Complements

Perfect complements are goods that are consumed together in fixed proportions. If you have right gloves and left gloves as an example, you need exactly one of each to form a useful pair. Having an additional right glove without a left glove (or vice versa) does not increase your utility. Therefore, the indifference curves for perfect complements are L-shaped. Imagine plotting right gloves on the x-axis and left gloves on the y-axis. The curve starts from the origin and moves equally along both axes. This reflects that you need both types of gloves in specific proportions to gain utility.

Perfect Substitutes

Perfect substitutes are goods that can replace each other in consumption. A classic example is Coca-Cola and Pepsi. Many people are willing to substitute one for the other at a constant rate, reflecting that they derive similar utility from either. The indifference curve for perfect substitutes is a straight line with a slope of -1. This means, if you give up one unit of Coca-Cola, you need exactly one unit of Pepsi to maintain the same utility level. When you plot Coca-Cola on the x-axis and Pepsi on the y-axis, this straight-line curve shows that the consumer can switch between the two goods freely and with ease.

Diminishing Marginal Rate of Substitution

The concept of diminishing marginal rate of substitution applies to goods where the rate at which you are willing to substitute one good for another decreases as you consume more of one good. For instance, desktop computers and laptop computers may serve a similar purpose, but preferences differ based on availability and features. The indifference curves for such goods are convex to the origin. Suppose you plot desktop computers on the x-axis and laptop computers on the y-axis. Initially, you may be willing to give up several desktops for one laptop, but as you get more laptops, you are less willing to give up additional desktops. This convex shape shows the diminishing willingness to substitute one good for another.

Utility

Utility refers to the satisfaction or happiness one derives from consuming goods and services. Indifference curves are a way to visually represent combinations of different goods that provide the same level of utility. For example, eating strawberries and ice cream together provides certain utility. Suppose you plot strawberries on the x-axis and ice cream on the y-axis. If a particular combination lies on a specific indifference curve, any combination on that curve gives the same level of satisfaction. This way, the curves help us understand consumer preferences without quantifying utility directly.

Convexity

Convexity in the context of indifference curves means that the curve bends inward towards the origin. This shape reflects a balanced but flexible consumption. For example, strawberries and ice cream consumed together show this property. The consumer enjoys having both in varying proportions, thus the indifference curve is convex. Plot strawberries on the x-axis and ice cream on the y-axis. As opposed to L-shaped curves for perfect complements, convex curves show that the consumer is willing to trade some strawberries for more ice cream and vice versa, but the exact rate of substitution decreases as one consumes more of one good relative to the other.