What does the property of indifference curve that higher the indifference curve, higher is the level of utility shows?

That the consumers preferences are monotonic

The correct answer is option 1: That the consumers preferences are monotonic

A higher indifference curve will give a higher level of satisfaction. This is because a higher indifference curve has bundles which consist of more of both the goods X and Y than the indifference curves below it. This represents monotonicity of consumer preferences. Because monotonicity means between any two bundles, the consumer prefers the bundle which has more of at least one of the goods and no less of the other good as compared to the other bundle.