Final answer:
Indifference curves represent combinations of goods that provide the same level of utility or satisfaction to the consumer. While typically drawn in the first quadrant, a 4th quadrant representation would be unconventional, as it implies negative quantities of goods. The given example illustrates Lilly's equal satisfaction from various combinations of books and doughnuts along an indifference curve.
Step-by-step explanation:
Indifference curves are a graphical representation used in economics to show combinations of goods that give a consumer the same level of satisfaction or utility. An indifference curve is typically drawn in the first quadrant of a two-dimensional graph where both axes represent quantities of different goods. However, the mention of the 4th quadrant is unusual since this quadrant would imply negative quantities of goods, which doesn't make practical sense in the usual economic analysis.
In the given example, we see indifference curve Um with points A, B, C, and D. Each point represents combinations of two goods, books and doughnuts, which provide Lilly with the same utility. For instance, point A on the indifference curve indicates that Lilly achieves the same level of utility from having two books and 120 doughnuts as she would from having three books and 84 doughnuts at point B, and so on with points C and D. The curve shows Lilly's personal preference for trade-offs between eating doughnuts and reading books, and each point along this curve, labeled and intermediate, provides her with equal satisfaction.
Utility is the term used in economics to describe the satisfaction or benefit derived from consuming goods and services. While you cannot directly measure utility with a number, indifference curves help to illustrate the concept by mapping out the combinations of goods between which a consumer is indifferent. For example, if Lilly is presented with various combinations of books and doughnuts along the same indifference curve, she would have no preference as each combination is assumed to give her the same level of utility.