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Unformatted text preview: We know how to represent changes in demand as price or income changes on a graph, but how can we show preferences? What makes buyers happy and how can we measure that happiness? Economists use the term utility when referring to the level of happiness or satisfaction that someone experiences from buying (or selling) goods and services: the more utility, the happier the person. Utility is typically represented on a graph in an indifference curve. An indifference curve represents all of the different combinations of two goods that generate the same level of utility. What this means is that each point on an indifference curve represents a combination of goods. All points on one indifference curve give the person the exact same amount of happiness. For instance, if you give Jim a choice between points A and B on this indifference curve, he won't really mind either way, he is indifferent. One shirt and two hats makes him just as won't really mind either way, he is indifferent....
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- Fall '11