Final answer:
An indifference curve shows combinations of goods that provide an equal level of utility or satisfaction. It represents the different combinations of two goods that give a consumer the same level of satisfaction.
Step-by-step explanation:
An indifference curve shows combinations of goods that provide an equal level of utility or satisfaction. It represents the different combinations of two goods that give a consumer the same level of satisfaction.
For example, Lilly's indifference curve Um shows that she receives the same utility from having two books and 120 doughnuts, three books and 84 doughnuts, 11 books and 40 doughnuts, or 12 books and 35 doughnuts. The unlabeled intermediate points on the curve represent combinations that also give her the same level of utility.
This allows economists to analyze how consumers make choices and make predictions about their preferences and behavior.