Economics, 3rd Edition

Representing Preferences with Indifference Curves

The consumer’s preferences allow him to choose among different bundles of cola and pizza. The SEM 

assumes that consumers behave rationally and that, if you offer two different bundles, they chose the 

bundle that best suits their tastes. Remember, we measure the level of satisfaction in terms of the utility 

it yields. We can represent consumer preferences in relation to the utility that different bundles of goods 

provide. If a consumer prefers one bundle of goods to another, the assumption of the SEM is that the first 

provides more utility than the second. If two bundles yield the same utility then the consumer is said to 

be indifferent between them. We can represent these preferences as indifference curves. An