Question : Statement 1: An individual's indifference curve is concave to the origin.
Statement 2: The concavity of indifference curves reflects the diminishing marginal rate of substitution.
Option 1: Statement 1 is true, and statement 2 is false.
Option 2: Statement 1 is false, and statement 2 is true.
Option 3: Both statement 1 and statement 2 are true.
Option 4: Both statement 1 and statement 2 are false.
Correct Answer: Both statement 1 and statement 2 are true.
Solution : The correct answer is (c) Option C: Both statement 1 and statement 2 are true.
Statement 1 is true. An individual's indifference curve is typically concave to the origin. This means that as the consumer moves along the indifference curve, the rate at which they are willing to substitute one good for another decreases.
Statement 2 is also true. The concavity of indifference curves reflects the diminishing marginal rate of substitution (MRS). The MRS measures the amount of one good a consumer is willing to give up to obtain an additional unit of another good while remaining on the same level of satisfaction. As the consumer consumes more of a particular good, their willingness to give up units of the other good decreases, leading to a diminishing MRS and the concavity of the indifference curve.
