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Difficulty: EasyIndifference Curves and Their Properties

A fundamental property of a standard indifference curve is that it is convex to the origin. Which economic concept directly explains why an indifference curve has this convex shape?

  1. Diminishing marginal rate of substitutionAnswer
  2. B
    Constant marginal rate of substitution
  3. C
    Increasing marginal rate of substitution
  4. D
    Total utility reaching its maximum when marginal utility is zero

Answer

Diminishing marginal rate of substitution
The convexity of an indifference curve to the origin is governed by the principle of diminishing marginal rate of substitution (MRSxyMRS_{xy}). As a consumer acquires successive units of one commodity along an indifference curve, their valuation of additional units of that good relative to the other good declines, meaning they sacrifice progressively smaller quantities of the second good.

Step-by-Step Solution

1
Identify the structural property of the indifference curve being evaluated
The curve is convex to the origin
Convexity refers to the inward curvature of the indifference curve toward the origin point on a two-good graph.
2
Analyze the rate at which the consumer substitutes one good for another along the curve
The Marginal Rate of Substitution (MRSxyMRS_{xy}) falls as consumption of Good X increases
To maintain equal satisfaction, equal additional units of Good X require giving up successively smaller quantities of Good Y.
3
Select the economic principle that matches this behavior
Diminishing marginal rate of substitution
The diminishing rate of substitution directly dictates the convex shape of standard indifference curves.

Key Concept

Diminishing Marginal Rate of Substitution and Indifference Curve Convexity
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Topics

Indifference Curves and Their Properties

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