An indifference curve measures the value a consumer receives from the consumption of two different products.
A popular alternative to marginal utility analysis of demand is indifference curve analysis. It is based on the preference of the consumer and holds that we cannot measure human satisfaction in monetary terms. This approach provides order to consumer preferences rather than measuring them in terms of money.
Ex. Mick has 1 unit of meat and 12 units of the t-shirt. Now, we ask Mick how many units of the t-shirt he is willing to give up in exchange for an additional unit of meat. Mick agrees to give up 6 units of a t-shirt for an additional unit of meat.so that his level of satisfaction remains unchanged.
Indifference curve downward slopping
Consumption of more than one product indicates a lower preference for the other product. This is known as the marginal rate of substitution. Generally, the better is consumed, the greater the intake of that goodwill, the lower the satisfaction. The first apple a person eats will bring great satisfaction to that person. However, by the time the person is eating the fourth apple, the satisfaction level will drop. Thus, the marginal rate of substitution is negative.
Indifference curve upward slopping
When a set of indifference curves is upward sloping, it means one of the goods is a “bad” in that the consumer prefers less of the good rather than more of the good. The positive slope means that the consumer will accept more of the bad good only if she also receives more of the other good in return. As we move up along the indifference curve the consumer has more of the good she likes, and also more of the good she does not like.