The slop of Cher's indifference curve at a particular point is -5. This information implies that:...

The slop of Cher's indifference curve at a particular point is -5. This information implies that:

A. She is currently consuming a relatively smaller amount of the good on the vertical axis compared to the good on the horizontal axis.

B. She is currently consuming no units of the good on the vertical axis.

C. She is currently consuming no units of the good on the horizontal axis.

D. She is currently consuming a relatively larger amount of the good on the vertical axis compared to the good on the horizontal axis.

Please answer and explain why that choice is correct.

Solutions

Expert Solution

The slope of the Indifference curve is given by,

Slope = - Marginal Utility of Vertical axis good(MU_y)/ Marginal Utility of Horizontal axis good(MU_x)

Here, slope = -5

=> - 5 = - MU_y/MU_x

Therefore, MU_y = 5 MU_x

This implies that marginal utility for vertical good is greater than the marginal utility of horizontal good. This further implies that the consumer consumes more of horizontal axis good than the vertical axis good(since, MU_y>MU_x) at that point of indifference curve.

Thus, cher is currently consuming a relatively smaller amount of the good on the vertical axis compared to the good on the horizontal axis.

And the option A is correct.

Rahul Sunny answered 1 year ago

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