Question

2. Explain in complete sentences with the help of graphs how each of the following five properties of the indifference curve is derived from the more-is-better principle. (a) Indifference curves are thin. (b) Indifference curves do not slope upwards. (c) The indifference curve that runs through consumption bundle A separates all the better- than-A bundles from the worse-than-A bundles. (d) Define a family of indifference curves as a collection of indifference curves that represent individual's preferences. Indifference curves of the same family do not cross (e) Consumer prefers bundles on the indifference curves that is the furthest from the origin.

Answer 1

'Indifference curve' is the graphical representation of two goods that a consumer can buy with a given fixed income.All the points on an indifference curve provides the consumer the same satisfaction,so he is indifferent towards different combinations of two goods on an indifference curve.More-is-Better principle deals with the monotonic preference of a consumer.It says that ceteris paribus, more of a good is more preferable to less of that good in a particular combination of goods.It is the basic assumption that says that greater consumption of a good always provides higher satisfaction.

a)Indifference curve are the combination/composition of innumerable points,that show various combinations of two goods that consumers can buy.Points are very small and when joined together forms a thinner curved line on the graphical plane.

b)The indifference curve does not slopes upward or slopes downward due to the law of Diminishing marginal utility(DMU) and falling Marginal rate of substitution(MRS).It means that as the consumer consumer more of a particular good the marginal utility/satisfaction gained from it goes on falling and the consumer also wants to sacrifice lesser of the other good.It is so because the slope of IC tends to decline.The IC is usually convex to origin.

c)It is true that IC through consumption bundle A separates the better than A and worse than A.It is so because all the ICs or consumption bundles lying above the bundle A contains more of goods than bundle A that provides the consumer greater satisfaction which is better for consumer.Also all the consumtion bundles lying below the bundle A would contain lesser combination of goods than bundle A that will provide less satisfaction.This is not good for consumer.

d)A set of indifference curves drawn in a graph is called indifference map/family of ICs.It consists of more than one indifference curve.The higher IC provides the higher level of satisfaction.The ICs need not to be parallel to each other.They cannot intersect or touch each other.They do not intersect because the law of transitivity holds good.we know that one IC shows a particular combination of goods and other IC contains the different combination of goods.If both intersects it would produce contradictory results.

e)This is so because of the law of monotonic preference.The farthest IC from origin consists of the highest combination of two goods that would provides the consumer maximum satisfaction.So it is always preferred by consumers.

The graphs can be drawn as follows-I'm sorry the diagram is not so accurate and efficient,i do not have tools right now with me.Next i would try to improve this too.However roughly reference diagram has been made to understand.

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