Final answer:
Indifference curves illustrate different combinations of two goods that provide the same level of utility to a consumer. These curves help to visualize consumer preferences and the trade-offs a consumer is willing to make between two goods, such as doughnuts and paperback books for Lilly. They are an essential tool in understanding consumer behavior in microeconomics.
Step-by-step explanation:
The question asks to illustrate preference information using indifference curves in the context of economics. An indifference curve is used in microeconomics to show combinations of goods or services that provide the consumer with the same level of satisfaction or utility. For instance, if we consider Lilly's relaxation activities which are eating doughnuts and reading paperback books, we can plot an indifference curve showing different combinations of the two goods that will give Lilly the same happiness. The curves typically slope downwards, indicating that if Lilly consumes more doughnuts, she will be willing to give up some paperback books to maintain the same level of utility, and vice versa.
Each indifference curve, such as U1, Um, and Uh in the example, represents a different level of utility, hence moving to a higher curve represents an increase in utility. Indifference curves are drawn to be convex to the origin; they are steeper on the left and flatter on the right, representing diminishing marginal rates of substitution between goods. The specific shape and position of these curves can vary from person to person based on their preferences. Although only a limited number of curves are usually shown on a diagram, it's important to understand that there are an infinite number of these curves representing every possible level of utility.