Chapter 1. eFigure 4.5
Animated Graph
A Consumer's Indifference Curves
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You must read each slide, and complete any questions on the slide, in sequence.
Question 1.1
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Correct! As Sarah’s indifference curve shows, when she has large numbers of t-shirts, she has relatively few pairs of socks. For Sarah, t-shirts are plentiful and pairs of socks are scarce. Since she likes both t-shirts and pairs of socks, she is willing to trade one for the other. However, this tradeoff changes. At the points on the indifference curve where Sarah has a large number of t-shirts she is willing to trade a larger number of the plentiful good (t-shirts) to obtain an additional unit of the scarce good (pairs of socks). Alternatively, if pairs of socks were plentiful and t-shirts were scarce, she would give up very few t-shirts to gain an additional pair of socks.
Incorrect! As Sarah’s indifference curve shows, when she has large numbers of t-shirts, she has relatively few pairs of socks. For Sarah, t-shirts are plentiful and pairs of socks are scarce. Since she likes both t-shirts and pairs of socks, she is willing to trade one for the other. However, this tradeoff changes. At the points on the indifference curve where Sarah has a large number of t-shirts she is willing to trade a larger number of the plentiful good (t-shirts) to obtain an additional unit of the scarce good (pairs of socks). Alternatively, if pairs of socks were plentiful and t-shirts were scarce, she would give up very few t-shirts to gain an additional pair of socks.
Question 1.2
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Correct! The slope of the indifference curve tells us how many t-shirts Sarah would be willing to trade for a pair of socks. When the indifference curve is steeper, Sarah is willing to trade more t-shirts for socks. When the indifference curve is flatter, she is willing to trade fewer t-shirts for socks. We can measure the slopes of the indifference curve by measuring the slopes of the tangent lines. As we see below, as we move from left to right, the tangent lines become flatter, indicating Sarah would trade fewer t-shirts for socks. This is consistent with convex preferences, which imply the more socks Sarah has (and fewer t-shirts), the less willing she would be to give up t-shirts to get more socks.
Incorrect! The slope of the indifference curve tells us how many t-shirts Sarah would be willing to trade for a pair of socks. When the indifference curve is steeper, Sarah is willing to trade more t-shirts for socks. When the indifference curve is flatter, she is willing to trade fewer t-shirts for socks. We can measure the slopes of the indifference curve by measuring the slopes of the tangent lines. As we see below, as we move from left to right, the tangent lines become flatter, indicating Sarah would trade fewer t-shirts for socks. This is consistent with convex preferences, which imply the more socks Sarah has (and fewer t-shirts), the less willing she would be to give up t-shirts to get more socks.
Question 1.3
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Correct! By definition, MRSXY tells us the rate at which a consumer is willing to trade off the good on the x-axis for the good on the y-axis at any point. Mathematically, this is equivalent to -ΔY/ΔX at the same point, which tells us the change in good Y per the change in good X that would make the individual indifferent. Thus, all three characterizations are valid representations of MRSXY.
Incorrect! By definition, MRSXY tells us the rate at which a consumer is willing to trade off the good on the x-axis for the good on the y-axis at any point. Mathematically, this is equivalent to -ΔY/ΔX at the same point, which tells us the change in good Y per the change in good X that would make the individual indifferent. Thus, all three characterizations are valid representations of MRSXY.