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.
Question : Indifference curves are concave to the origin because of:
Option 1: Diminishing marginal utility
Option 2: Increasing marginal utility
Option 3: Constant marginal utility
Option 4: Zero marginal utility
Question : Statement 1: Indifference curves represent different combinations of goods that give the consumer the same level of satisfaction.
Statement 2: The consumer chooses the consumption bundle that lies on the highest attainable indifference curve.
Question : Statement 1: Consumer equilibrium can occur when the marginal rate of substitution is equal to the relative price of goods.
Statement 2: The marginal rate of substitution measures the rate at which a consumer is willing to substitute one good for another while maintaining the same level of satisfaction.
Question : Statement 1: The consumer's equilibrium is achieved when the budget line is steeper than the highest attainable indifference curve.
Statement 2: The consumer's equilibrium is determined by the intersection of the budget line and the highest attainable indifference curve.
Question : Statement 1: The slope of the budget line represents the relative price of two goods.
Statement 2: The consumer achieves equilibrium when the marginal rate of substitution is equal to the relative price of the goods.
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