Explain the economic reason for which consumption decisions are graphically represented as a straight line and...

Explain the economic reason for which consumption decisions are graphically represented as a straight line and production decisions are graphically represented as a curve.

Expert Solution

Consumption decisions are graphically represented as a straight line because when consumer's money expenditure on a good rises with the fall in price of the good, the demand for the good is elastic, i.e., elasticity of demand is more than one. Thus, the price consumption curve which is a horizontal straight line will show unit elasticity of demand.

Production decisions (PPC) are graphically represented as a curve because of increasing marginal rate of transformation. It implies that more and more units of commodity sacrificed to gain an additional unit of another commodity. PPC is convex shaped because of decreasing marginal rate of transformation.

Rahul Sunny answered 2 years ago

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