Indifference Curve Analysis
Follow this resource to learn more about the concept of indifference curves. Make sure to answer the "Try It" quiz questions that show you the correct answer.
2. What Is an Indifference Curve?
2.3. Check Answers
- Point C
Incorrect At this point the indifference curve is shallow and the marginal rate of substitution is small. Allison would have to consume many cups of coffee in exchange for losing a single donut while remaining on the same indifference curve.
- Point A
Correct! At this point the indifference curve is steep and Allison would have to consume a significant number of donuts in exchange for a single coffee to remain on the same indifference curve.
- Point B
Incorrect. At this point the marginal rate of substitution, the absolute value of the slope of the indifference curve, approaches one and she would only have to consume a single extra donut in exchange for a single coffee.
- Peggy always receives more utils eating chocolate than caramel.
Incorrect The shape of the indifference curve implies that the marginal rate of substitution changes depending on her relative consumption of chocolate and caramel. She may be indifferent between 5 chocolates 300 caramels and 300 chocolates 5 caramels.
- The only explanation for Peggy's indifference between this year and last is that her tastes have fundamentally changed. She no longer enjoys caramel as much as she did before.
Incorrect. Her indifference curve may be identical to last year while she is simply at a different point along that curve where marginal substitution is closer to one.
- Peggy's indifference curve of chocolate and caramel is convex.
Correct! As with all other indifference curves Peggy’s marginal rate of substitution between caramel and chocolate changes depending on the relative consumption of the two foods.