One of Jim - One of Jim's Indifference Curves for Shirts...

One of Jim's Indifference Curves for Shirts and Hats
In general, indifference curves bow in towards the origin, rather than being straight lines or
outward-bulging curves. The reason for this is that most people do not like extremes: they would
rather have a some shirts and some hats than many hats and no shirts. This changing preference
results in the traditional inward-curving indifference curves, and illustrates the effects of
diminishing returns. In this example, diminishing returns simply means that the first hat Jim gets
makes him happier than the second hat, which makes him happier than the third, and so on. His
marginal utility--the extra utility he gets with each hat--decreases with the number of hats he
gets. After a while, he has had enough of hats, the extra ones don't make him much happier, and
he'd rather get a shirt, and might even trade several hats for one shirt. Generally, at the extremes,
people are willing to give up many hats to get a few shirts; as the numbers even out, this