Indifference curve Analysis

1. What is an indifference curve?

• 1. a representation to depict the demand & supply of goods.

• a graph to show that the marginal utility of each commodity changes with changes in the price of goods.

• 1. a graph that depicts different combinations of two goods that provide a consumer with equal utility and satisfaction.

• a representation to show consumer satisfaction in relation to the price of the goods.

Indifference curve analysis is based on the concept of .............................

• Cardinal Utility

• Ordinal Utility

Indifference curves are L-shaped when the

• goods are perfect substitutes

• goods are perfect complements

• Imperfectly substitutable

• One good is neutral good

If the two goods are perfect substitutes, the marginal rate of subsitution is

• negative and constant

• • - 1

• • + 1

• none of the above

The slope of the indifference curve is

• Marginal Rate of Substitution

• • - P_X/P_Y

• Marginal Rate of Technical Substitution

• None of the above

If indifference curves are strictly convex, the consumer's equilibrium is attained where

• IC is tangent to the budget line

• MRS = P_X/P_Y

• both of the above

• none of the above

As we move downward along an indifference curve, the slope if IC is

• increasing

• diminishing

• constant

• zero

Consider two goods X and Y. If Price of Good Y falls, the budget line becomes

• steeper

• flatter

• remains the same

• parallel to Y-axis

Which of the following is NOT true about ICs?

• ICs are concave to origin

• Higher IC represents higher level of satisfaction

• ICs are non-intersecting

• ICs reflect preferences of the consumer

When P_{x ,} P_Y and the income of the consumer double, the budget line will

• pivot

• shift outwards parallely

• shift inwards parallely

• remain unchanged