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 does a concave indifference curve mean?
Concavity of the indifference curves implies that the marginal rate of substitution of X for y increases when more of X is substituted for Y. It will be clear from the analysis made below that in case of indifference curves being concave to the origin the consumer will choose or buy only one good.
Why the shape of the indifference curve is normally negative sloping?
The negative slope of the indifference curve reflects the assumption of the monotonicity of consumer’s preferences, which generates monotonically increasing utility functions, and the assumption of non-satiation (marginal utility for all goods is always positive); an upward sloping indifference curve would imply that a …
Why is indifference curve L shaped?
When two goods are perfect complements, they are represented by a ‘L’ shaped indifference curve.
When two goods are perfect complements the indifference curve is?
If the two goods are perfect complements the indifference curve is right-angled or L shaped, as shown in Figure 43 (A). The vertical portion of the I1, curve reveals that no amount of reduction in good Y will lead even to a slight increase in good X.
Can indifference curve be L shaped?
When two goods are perfectly complementary the indifference curve will be?
How do you know if an indifference curve is convex?
If preferences are convex then indifference curves are convex to the origin. Suppose x and y lie on an indifference curve. By convexity, tx + (1 − t)y lies on a higher indifference curve, for t ∈ [0,1]. By monotonicity, this higher indifference curve lies to the northeast of the original indifference curve.
How do you know if two goods are perfect substitutes?
A positive cross-price elasticity value indicates that the two goods are substitutes. For substitute goods, as the price of one good rises, the demand for the substitute good increases. For example, if the price of coffee increases, consumers may purchase less coffee and more tea.
