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Why is an Indifference curve generally convex to the origin. |
Answer» Solution :(i) As, weknow quantity of one commodity increases, its marginal rate of substitution falls because , of law of diminishing marginal UTILITY Marginal rate of substitution is a slope of Indifference curve and WHENEVER slope [MRS] decreases it makes the curve convex to the point of origin.  (ii) In the above diagram , units of y are measured on vertical axis and units of x on horizontal axis. When hte consumer moves from combination A (1x + 25y ) to B (2x + 20y) , he acquires one additional unit of x and forgoes (sacrifice) 5 units of y , if he wants to get the same level of satisfaction. The consumer has to reduce the consumption of y when the increases the consumption of x. The number of units of good y that the consumer is willibg to sacrifice for an additional unit of goodx, so as to maintainthe same level of satisfaction is technically called the marginal rate is substitution of x for y and is denoted by `MRS_(xy)`. (III) So, the `MRS_(xy)` when the consumer move from combination A to B is 5 : 1 , further as the consumer move from combination B to C, he acquires one more units of x, but the consumer forgoes a smaller number of y, i.E ., `MRS_(xy)` at this stage is 4 : 1 . It may be observed now that MRS diminishes as the consumer moves from combination A to B , B to C, C to D, D to E. The consumer forgoes less and less units of y as he acquires additional unit of x. |
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