Why, year after year, do so many students fail to understand indifference curves?
It could be that I notice the students who get the answers wrong more than the students who get the answers right. It could be that my students don't study hard enough, or that I do a poor job of communicating the material. But I'm beginning to think that there is something about the concept of indifference curves that makes them fundamentally difficult to understand.
There's the name, to begin with. All the points on an indifference curve are equally good, from the consumer's point of view. It's a "no difference" curve. Every point on the indifference curve yields the consumer equal satisfaction. They might all make the consumer deliriously happy. They might all make the consumer miserable. The point is, there's no difference in the satisfaction the consumer enjoys at any point on the indifference curve. This is confusing for students, because in everyday speech, indifference means something more like "meh." (Some people use the phrase "isoutility curve" to avoid this confusion, but it hasn't gained general currency).
A more fundamental issue is that creating an indifference curve involves introspection and hypothesis. With demand curves, people's responses to price changes can be observed directly: bus fares go up, people choose to ride bicycles instead. Budget constraints are a simple function of prices and incomes. But indifference curves are a representation of what's inside the consumer's head, not (for the most part) observable reality. What consumption bundle would be equivalent to barbequed lamb, a bottle of wine, and having some good friends over for dinner? I have no idea, and neither does anyone else.
I suspect that, as human animals, we aren't well suited to thinking about indifference. When life presents us with choices, there is survival value to identifying the best option. Given superficially similar alternatives - five lines-ups in the grocery store, say - we search for the one that's best, not for two that are equally good.
One solution to these difficulties is to simply abandon indifference curves entirely as a pedagogical tool. I'm reluctant to do that. Indifference curves are a way of analyzing whether policies make people better off or worse off, and predicting how people will respond to changes in economic incentives. Indifference curves can be used to explain the ideas of substitutes and complements, goods and bads, normal and inferior goods, income and substitution effects. Sure, one can wave one's hands and give verbal explanations, or formulate these concepts mathematically in terms of cross-price elasticities and income elasticities. Yet the first is hard to do well, and I am far from convinced that the typical student emerges from mathematical economics classes with any real understanding of how to apply economics to everyday life.
So indifference curves it is.