The slope of the indifference curve is known as the MRS . The MRS is the rate at which the consumer is willing to give up one good for another. If the consumer values apples, for example, the consumer will be slower to give them up for oranges, and the slope will reflect this rate of substitution.
Why do indifference curves slope?
Indifference curves slope downward because, if utility is to remain the same at all points along the curve , a reduction in the quantity of the good on the vertical axis must be counterbalanced by an increase in the quantity of the good on the horizontal axis (or vice versa).
What is the shape and slope of indifference curve?
Indifference curves have a roughly similar shape in two ways: 1) they are downward sloping from left to right ; 2) they are convex with respect to the origin. In other words, they are steeper on the left and flatter on the right.
Why is the slope of indifference curve negative?
Indifference curves are negatively sloped because for a constant level of utility, if the consumer wants to increase the consumption of one good, she has to reduce the consumption of the other good .
What is the slope of indifference curve at equilibrium?
equal to the slope of the budget line .
Why can't indifference curves cross?
Indifference curves never intersect, because by definition, all points on the same curve represent equivalent satisfaction . ... The red data point must have the same utility as the place where the curves cross. The green data point will also have the same utility as the place where the indifference curves intersect.
What is the slope of a budget line?
The slope of the budget line is also called the economic rate of substitution (ERS) . The slope of the budget line also represents the opportunity cost of consuming more of good A because it describes how much of good B the consumer has to give up to consume one more unit of good A.
Can indifference curves have positive slope?
In that case, a set of indifference curves is upward sloping. The positive slope means that the consumer will accept more of the bad good only if she also receives more of the other good in return . ... Given she dislikes both goods, her satisfaction is increasing in the direction of the origin.
How do you interpret an indifference curve?
An indifference curve shows a combination of two goods that give a consumer equal satisfaction and utility thereby making the consumer indifferent. Along the curve, the consumer has an equal preference for the combinations of goods shown—i.e. is indifferent about any combination of goods on the curve.
Can indifference curves be upward sloping?
A set of indifference curves can be upward sloping if we violate assumption number three ; more is preferred to less. When a set of indifference curves is upward sloping, it means one of the goods is a “bad” in that the consumer prefers less of the good rather than more of the good.
What is the shape of indifference curve?
Description: Graphically, the indifference curve is drawn as a downward sloping convex to the origin . The graph shows a combination of two goods that the consumer consumes.
What is the MRS of perfect complements?
MRS for perfect complements is same along a vertical or horizontal strip , while it is not defined at the kink. In case of perfect substitutes, MRS is same along the entire indifference curve.
How do you calculate MRS?
- X and Y represent two different goods.
- d'y / d'x = derivative of y with respect to x.
- MU = marginal utility of two goods, i.e., good Y and good X.
What is another name of price line?
The other name of Budget line is Price line. “A budget line or price line represents the various combinations of two goods which can be purchased with a given money income and assumed prices of goods”.
Can indifference curve touch either axis?
An indifference curve cannot touch either axis . If it touches X-axis, as I 2 in Figure 6 at U, the consumer will be having OM quantity of good X and none of Y. ... An indifference curve is convex to the origin. The convexity rule implies that as the consumer substitutes X for Y, the marginal rate of substitution diminishes.
