Indifference Curve Analysis: An Alternative Approach to Understanding Consumer Choice

Read this section to learn about indifference analysis. Attempt the "Try It” problems at the end of the section before checking your answers.

10. Answers to Try It! Problems

  1. The budget line is shown in Panel (a). Its slope is −$5/$10 = −0.5.
  2. Panel (b) shows indifference curve I. The points A, B, and C on I have been labeled.
  3. The tangency point at B shows the combinations of hamburgers and pizza that maximize the consumer's utility, given the budget constraint. At the point of tangency, the marginal rate of substitution (MRS) between the two goods is equal to the ratio of prices of the two goods. This means that the rate at which the consumer is willing to exchange one good for another equals the rate at which the goods can be exchanged in the market.