Indifference Curves and Consumer Choices

What is an indifference curve?

• A line showing the relationship between price and quantity demanded.

• A curve representing all combinations of goods that provide a consumer with the same level of satisfaction.

• A curve that indicates how income affects consumer choices.

• A line that shows the maximum budget available to a consumer.

Which of the following assumptions about consumer preferences is illustrated by indifference curves?

• More is better than less.

• Preferences are incomplete.

• Goods are perfect substitutes.

• Consumers prefer less of a 'bad' good.

What does the marginal rate of substitution (MRS) measure?

• The price ratio between two goods.

• The slope of the budget line.

• The maximum amount of one good a consumer is willing to give up to obtain one additional unit of another good.

• The income effect on consumer choices.

Why are indifference curves typically convex to the origin?

• Because consumers have constant preferences.

• Because of a diminishing marginal rate of substitution (MRS).

• Because more of each good is preferred to less.

• Because goods are always perfect substitutes.

What happens to the MRS as you move down along a typical indifference curve?

• It remains constant.

• It increases.

• It decreases.

• It becomes negative.