Hi, I am always confused when two indifference curve are convex, what does it mean about two goods? When the curve is concave , what does it mean? When it's L shaped or straight line, what does it mean?

what does the indifference curve looks like for a pair of two goods, a bad and good, bad and bad,

eg x good, y good,

x bad, y good

x good, y bad

x bad , y bad

 

Straight line means that two goods are perfect substitutes, which means that either you use x or y you get same level of satisfaction. So if consumer is gaining one more unit of good x, he will be ready to give up exactly one unit of good y.

L shaped curve means that two goods cannot be used without each other, they are complements. Here we can take example of oil and car. Car cannot be used without petrol, and in every car there is specific amount of petrol that can be filled. So, if a person has one car, he can only get that specific amount filled, he cannot use more or less than that. So his curve will be L shaped where there is only one buying point. You cannot use less than or more than one car for one unit of petrol. For 2 cars 2 units of petrol are needed otherwise petrol and car both are of no use. Consumer always wants to consume the two goods in the same fixed proportions no matter what are the relative prices.

When both goods are good, consumer has to consume less of x to get more of y, that's why the slope is negative and convex to the origin. Consuming more x will lead to less consumption and vice versa. To get half more unit of y, consumer has to give up one unit of x. Higher indifference curve IC2 gives more satisfaction than IC1.

When one of the two goods is a bad it means that the consumer prefers less of good x (the bad) rather than more of the good y. In that case, a set of indifference curves is upward sloping. The positive slope means that the consumer will accept more of the bad good x only if he receives more of the good y in return. As we move up along the indifference curve the consumer has more of the good x and also more of the good y . This violates the assumption that more is preferred to less.  We place good on horizontal axis and bad on vertical axis. If good y was bad, we would have put that on vertical axis instead of horizontal axis and graph would be same.

Since both goods are bad, the set of indifference curves will be bowed inwards (concave) towards the origin instead of outwards, as in the normal case where more is preferred to less in this case less is preferred. Given both goods are bad, the satisfaction is increasing in the direction of the origin when a person has less of both. Higher indifference curve IC2 gives less satisfaction than IC1.

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