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Why is the substitution effect important from an empirical perspective? How does the convexity of indifference curves matter to this discussion?

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Irving Heathcote
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7 Mar 2019

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Related questions

Question 1
a. Why are indifference curves convex to the origin? Explain what Marginal Rate of Substitution (MRS) means? When would indifference curves be linear, vertical or horizontal?
b. Explain the concepts of income effect and substitution effect? When would the individual labour supply curve bend backwards (explain using diagram)? What would be the shape of the labour supply curve if the income effect was always equal to the substitution effect (Explain using diagram)

9) Which one of the following statements is false? A) Indifference curves are bowed out from the origin. B) The marginal rate of substitution is the magnitude of the slope of an indifference curve, C) The marginal rate of substitution increases as a consumer moves up along an indifference curve for ordinary goods. D) Indifference curves are negatively sloped. E) A preference map consists of a series of indifference curves.

Indifference curves cannot be concave to the origin because:

A. Consumers generally will prefer to have more of a good than less of a good.

B. The satisfaction consumers get from consuming additional units of a good declines.

C. Consumers must give up more of one good to obtain more of another good.

D. The substitution effect holds across indifference curves.

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