28 PA R T I INTRODUCTION AND BACKGROUND

utility (and so among which the individual is indifferent). In this case, Andrea
gets the same utility from bundles A and B, so they lie on the same indiffer-
ence curve. Because she gets a higher level of utility from consuming bundle
C instead of either A or B, bundle C is on a higher indifference curve.
Indifference curves have two essential properties, both of which follow nat-
urally from the more-is-better assumption:
1. Consumers prefer higher indifference curves. Individuals prefer to con-
sume bundles that are located on indifference curves that are farther out
from the origin because they represent bundles that have more of, for
example, both CDs and movies.
2. Indifference curves are always downward sloping. Indifference curves can-
not slope upward because that would imply that, in this instance, Andrea is
indifferent between a given bundle and another bundle that has more of
both CDs and movies, which violates the more-is-better assumption.
A great example of indifference curve analysis is job choice. Suppose that
Sam graduates and is considering two attributes as he searches across jobs: the
starting salary and the location of the job. Sam prefers both a higher salary and
a higher temperature location because he likes nice weather. We can represent
Sams preferences using Figure 2-2, which shows the trade-off between salary
and weather. Sam has three job choices:
Bundle A: Starting salary of $30,000 in Phoenix, AZ (hot!)
Bundle B: Starting salary of $50,000 in Minneapolis, MN (cold!)
Bundle C: Starting salary of $40,000 in Washington, D.C. (moderate)
Given Sams preferences, it may be that he is indifferent between bundles A
and Bthat is, the higher starting salary in Minneapolis is enough to compensate

FIGURE 2-2

Salary
(dollars) Indifference Curve Analysis of
Job Choice In choosing a job,
Sam trades off the two things he
cares about, salary and average
BMinneapolis temperature. On IC1, he is indiffer-
$50,000
ent between a job in Minneapolis,
with a high salary and a low aver-
age temperature, and one in
CWashington, D.C. Phoenix, with a lower salary and a
40,000
higher average temperature. How-
ever, as indicated by its position on
IC2, he prefers a job in Washington,
IC2 D.C., with an average salary and an
30,000 average temperature.
IC1
APhoenix

0 Cold! Moderate Hot! Location (temperature)