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Indifference curve

https://imgur.com/a/iJdtA
Hi,

I'd appreciate it if someone could explain to me about the part about the signs in the picture above. What does it mean by economics bad and I don't get what it means by 'a good and a bad'.

Thanks

Reply 1

BasicMistake

They put that in the worst way possible. Try 'nice' goods and 'bad' goods instead. Also, positive and negative refers to the gradient of the indifference curve.

Nice goods are monotonic, you want to have them and the more you have the happier you are.

Bad goods are ones you don't want to have and the more you have, the less happy you are.

Normal indifference curves depict two nice goods, say A and B. You enjoy having both of them, maybe not equally but both are good to have. You will be equally happy with a lot of good A and a bit of good B or a lot of good B and a bit of good A. Or you may take a proportional combination of the two. This traces out a downward sloping (usually convex) indifference curve. Adding more of a good to a bundle shifts the curve outwards, away from the origin, you are on a higher indifference curve with more utility.

If you turned both goods into 'bad' goods then you don't want either of them. You are equally unhappy with a lot of good A and a bit of good B, vice-versa and a proportional combination of the two. This also makes a downward-sloping (but usually concave) indifference curve.

One 'nice' and one 'bad' has an upward-sloping indifference curve. Think of it like this, 'nice' is car usage whereas 'bad' is pollution. You will be happy with a lot of pollution as long as you are compensated with a lot of car usage. You will be equally happy with high pollution with high car usage as you would be with low pollution and low car usage. This traces out an indifference curve which increases with pollution as long as car usage increases.

Try plotting these yourself. Quantity of one thing on one axis and quantity of another thing on the other. Mix and match things you like and dislike.

Reply 2

bm3school

An indifference curve shows various combinations of two goods that provides equal level of satisfaction to consumer. Check out this article to learn about properties of indifference curve.