ECO101H1 Chapter Notes - Chapter 6: Indifference Curve, Opportunity Cost, Demand Curve

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The consumer is indifferent between the combinations indicated by any two points on one indifference curve. Any point above an indifference curve is preferred to any point along that same indifference curve; any point on the curve is preferred to any point below it. Marginal rate of substitution (mrs): the amount of one product that a consumer is willing to give up to get one more unit of another product but keeping utility the same. The first basic assumption of indifference theory is that the algebraic value of the mrs between two goods is always negative. Any indifference curve becomes flatter as the consumer moves downward and to the right along the curve because they will be willing to give up less and less of a scarce product to obtain a plentiful product. An indifference map consists of a set of indifference curves.

Related Questions

18. Which of the following statements is false? A) A consumer possesses a preference map. B) An indifference curve is a line that shows combinations of goods among which a consumer is indifferent. C) A consumer has only one indifference curve. D) The marginal rate of substitution is the rate at which a consumer will give up good y to get an additional unit of good x and remain on the same indifference curve. E) If the indifference curve is steep, the marginal rate of substitution is high.

Microeconomics Four-part multiple choice question with an explanation. Give a short explanation for each part regarding how your answer is computed or why your answer is correct.

Part A.

Para mi volunteers at a homeless shelter. It takes a lot of her time, and thus she sometimes takes off time from her job to do the volunteer work. Parami's behavior can be explained by:

	overconfidence.
	a framing bias.
	altruism.
	overvaluing the present relative to the future.

Part B.

Indifference curves cannot be concave to the origin because:

	consumers generally will prefer to have more of a good than less of a good.
	the satisfaction consumers get from consuming additional units of a good decline.
	the substitution effect holds across indifference curves.
	consumers must give up more of one good to obtain more of another good.

Part C.

Marginal utility analysis and indifference curve analysis are both used to:

	compute comparative advantage.
	derive supply curves.
	derive demand curves.
	analyze the total revenue.

Part D.

Indifference curves:

	represent a set of product bundles to which a consumer is indifferent.
	slope up and to the right.
	show the difference between the marginal utilities of two different goods.
	are concave to the origin.