The paper "Tax Reforms in the United States" is a wonderful example of an assignment on macro and microeconomics. The indifference curve shows a similar level of satisfaction for a consumer who is presented with different combinations of goods. At any point on the graph, the consumer is indifferent. In that case, therefore, a consumer can choose any point on the indifference and will get some satisfaction from the two combinations of the goods. The indifference curve can be used to rank consumer preferences with respect to two bundles of goods. A firm can be faced with an intricate situation where numerous products are competing.
Systematically these products are classified according to common traits then subjected to rank using indifference curves. When looking at the rank of bundles of goods, it is imperative to pay attention to the properties of indifference curves. One of the properties states that a consumer is well off on an indifference curve that is farther up and located to the right as shown in figure 1. A higher indifference curve represents larger quantities while a lower indifference curve represents lower quantities. Figure 1 is an indifference curve showing that a consumer would be better off at a point on indifference curve Y as opposed to pointing a point on indifference curve X.
This is because curve Y is located on a higher indifference curve compared with curve X. At a point on Y, a consumer is able to access more combinations of the two goods. The gradient of an indifference curve measures the marginal rate of substitution i. e. amount of good P that must be replaced so as to make up for the loss of good W.
Noting that a consumer would rather consume more of both goods, the best option is to move to a higher indifference curve. By observing points that are on a higher indifference curve, a person can easily rank a combination of goods. The indifference curve can also be applied in deciding products that can be subsidized by the government. Assuming a consumer shows a preference for bananas and milk and earns an income of $100 per week. If the price of milk is $2 per kg, and the consumer spends all income on milk, the consumer will be able to buy 50 packets and zero bananas.
Convinced that milk is good for a consumer, the government can subsidize the price of milk; for every $2 spent on milk, the government settles $0.50. The cost of the milk to the consumer is now $1.50 per packet.
McEachern, William. Microeconomics: A Contemporary Introduction. London: Cengage Learning, 2013.