____________ shows various combinations of two goods that give same amount of satisfaction to the consumer?a)Isocost curveb)Marginal utility curvec)Indifference curved)IsoquantCorrect answer is option 'C'. Can you explain this answer?

Question

Answer

Indifference curve is defined as the locus of points on the graph each representing a different combination of two substitute goods, which yield the same utility or level of satisfaction to a consumer. The combinations of goods give equal satisfaction to a consumer.

Therefore, a consumer is indifferent between any two combinations of two goods when it comes to making a choice between them. When these combinations are plotted on the graph, the resulting curve is called indifference curve. This curve is also called as iso-utility curve or equal utility curve.

Answer

INDIFFERENCE CURVE refers to the graphical representation of various alternative combinations of bundles of two goods among which the consumer is indifferent. It is also known as Equal Satisfaction Curve or Iso - utility Curve

Answer

Indifference curves show various combinations of two goods that give the same amount of satisfaction to the consumer. Let's understand this concept in detail.

Indifference curves:
- Indifference curves are graphical representations that show different combinations of two goods that provide the consumer with the same level of satisfaction or utility.
- Each point on the indifference curve represents a different combination of the two goods. The consumer is indifferent between these combinations because they provide the same level of satisfaction.
- Indifference curves are downward sloping and convex to the origin. This implies that the consumer is willing to give up some of one good to obtain more of the other, but the willingness to trade off diminishes as the consumer consumes more of a particular good.

Why are indifference curves downward sloping?
- The downward slope of indifference curves is based on the principle of diminishing marginal rate of substitution (MRS). MRS measures the rate at which a consumer is willing to trade off one good for another while keeping the satisfaction level constant.
- As the consumer consumes more of one good, the MRS decreases because the consumer is willing to give up less of the other good to obtain additional units of the first good.
- This decrease in MRS leads to a downward slope of indifference curves.

Why are indifference curves convex to the origin?
- The convex shape of indifference curves reflects the principle of diminishing marginal utility. Marginal utility is the additional satisfaction gained from consuming an additional unit of a good.
- As the consumer consumes more of a particular good, the marginal utility decreases. This means that the consumer requires a larger quantity of the other good to compensate for the diminishing marginal utility of the first good.
- The convex shape of indifference curves indicates that the consumer is willing to give up larger quantities of one good as they consume more of the other good.

Key points:
- Indifference curves show various combinations of two goods that give the same amount of satisfaction to the consumer.
- These curves are downward sloping due to the principle of diminishing marginal rate of substitution.
- The convex shape of indifference curves reflects the principle of diminishing marginal utility.
- Indifference curves are used to analyze consumer preferences and help determine optimal consumption choices for maximizing utility.

In conclusion, indifference curves are a useful tool in understanding consumer behavior and preferences. They help economists analyze how consumers make choices based on their preferences and the trade-offs they are willing to make between different goods.

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