One of the standard assumptions about consumer preferences is that the... Our experts can answer your tough homework and study questions. Consider the function f(x) = x^4 + 4x^3. If more resources become available, or if the consumer's income … It slopes downward because as the consumer increases the consumption of X commodity, he has to give up certain units of Y commodity in … Explain. The indifference curve slopes downward because of the monotonicity assumption. Another way to prevent getting this page in the future is to use Privacy Pass. 8. An example of (almost) perfect substitutes we have already seen is green and blue pens. Two indifference curves cannot cut each other because: (A) They represent those combinations of two goods that give the same satisfaction (B) They slope downwards. This means that an indifference curve is negatively sloped. “ The Index Premium and Its Hidden Cost for Index Funds.” Working Paper, Yale University (2008). ADVERTISEMENTS: When the price of a commodity falls, the consumer can buy more quantity of the commodity with his given income. Services, Indifference Curves: Use & Impact in Economics, Working Scholars® Bringing Tuition-Free College to the Community. Why do indifference curves slope downward? If two goods are perfect substitutes then the indifference curves will have a constant slope since the consumer would be willing to switch between at a fixed ratio. Figure 1, for example, applies only to Lilly’s preferences. This video explains why sensible indifference curves can't intersect. Get solutions . where dY/dX is the slope of the indifference curve. Indifference curve. B.Zero. Two points on an indifference curve represent the same level of utility to the consumer; therefore, consumers are indifferent between consumption bundles represented by any two points on an indifference curve. So, that is my indifference curve. We have step-by-step solutions for your textbooks written by Bartleby experts! Hence, when the quantity of one commodity (A) in a combination of two goods increase, the quantity of the other commodity (O) must decline. C.Same level of satisfaction. That is impossible with indifference curves. Indifference curves slope down from left to right because as a consumer increases his or her consumption of one good, he or she consumes less of the other good to keep his or her satisfaction constant. Virtually all indifference curves have a negative slope. In indifference map, higher IC indicates: A.Lower level of satisfaction. Show transcribed image text. So, any point on this curve right over here, I'm indifferent relative to my current predicament of 15 bars and 5 pounds of chocolate. Indifference curves are drawn based on the consumer's presumed indifference. We have solutions for your book! All points along a single indifference curve provide the same level of utility. B.Higher level of satisfaction. C.Decline. As can be seen from Equation 4, this implies that the indifference curve gets flatter as the quantity of X consumed increases relative to … Indifference curves slope downwards. It might look something like this and then keep going all the way down like that. Earn Transferable Credit & Get your Degree, Get access to this video and our entire Q&A library. The indifference curves must slope down from left to right. An indifference curve is related to: (A) Choices and preferences of consumer (B) Prices of goods X and Y (C) Consumer’s … It measures the rate at which the consumer is just willing to substitute one commodity for the other. Why Indifference Curves Never Intersect. Cloudflare Ray ID: 61f8a7167fba2b22 The indifference curves must slope down from left to right. The negative slope of the indifference curve incorporates the willingness of the consumer to make trade offs. Why do indifference curves have a convex shape? 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). Performance & security by Cloudflare, Please complete the security check to access. Indifference curves are convex to the origin because as the consumer begins to increase his or her use of one good over another, the curve represents the marginal rate of substitution. Answer: (C) 9. One kind of economic good is placed on each axis. © copyright 2003-2021 Study.com. Now, the important question is why the demand curve slopes downward, or in other words why the law of demand describing inverse price-demand relationship is valid. Because there is a trade-off of more for less. Risky Portfolio and a Risk Free Asset the curve shows the rate at which the.. 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