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Microeconomics: Principles & Policy

14th Edition
William J. Baumol + 2 others
Publisher: Cengage Learning
ISBN: 9781337794992

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BuyFindarrow_forward

Microeconomics: Principles & Policy

14th Edition
William J. Baumol + 2 others
Publisher: Cengage Learning
ISBN: 9781337794992
Chapter 5.A, Problem 3TY
Textbook Problem
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Explain the information that the slope of an indifference curve conveys about a consumer’s preferences. Use this relationship to explain the typical U-shaped curvature of indifference curves.

To determine

The features of indifference curve.

Explanation of Solution

An indifference curve represents all the combination of commodities that are equally desirable to the consumer and provide equal total utility to the consumer.

Any two points on the same indifference curve represent two combinations of the goods that that the consumer likes equally well. The consumer has option to choose any of the bundles that he can afford. This free to choose concept indicates only that a change in which of two such bundles the consumer selects will make him neither better off nor worse off, in terms of the items (goods)received. Consumer can prefer any bundle that lies on the indifference curve to get the same utility.

The reason behind typical U-shaped curvature of indifference curve can be understand with the help of the slope of an indifference curve.

The slope of an indifference curve represents the maximum amount of one commodity that the consumer is willing to give up in exchange for one more unit of another commodity. It is referred as the marginal rate of substitution (MRS) between the commodities.

In this figure AE is the quantity of good Y that the consumer gives up in moving from A to B...

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