Question

Why indifference curve is convex to the origin for normal goods and
linear curve for perfect substitutes? (400-500 words w diagram for better understanding)

Answer 1

When the goods are normal goods indifference curve is convex to the origin. Here the concept of law of diminishing marginal utility will help. The law of diminishing marginal utility holds that as more and more a good is consumed the utility derived from consumption of each successive unit goes on decreasing. Indifference curve is convex to the origin in case of normal goods because the marginal rate of substitution decreases as we substitute one good for the other. Marginal Rate of Substitution is the rate at which one good is given up in order to have more of the other good. Suppose, there are two goods x and y. In order to have more of x, I have to give up y. The Quantity of y which I have to give up to have one more unit of x is called Marginal Rate of Substitution at a point. Now, as more and more one good(say x) is consumed by giving up some other good (say y), law of diminishing marginal utility applies and consumer is willing to give up less and less of the other good(y) to consume additional units of one good(x). So the rate at which y is given up to have more of good x Decreases as more and more of X is Consumed that is marginal rate of substitution decreases. This leads to the result of Indifference Curves being convex to the origin in case of normal goods as shown below.

In case the goods are perfect substitutes, the indifference curve would be a linear Curve. This is because to a consumer both goods give same utility. As more and more of one good is consumed the rate at which the other good is given up for this remains constant because the law of marginal diminishing utility doesn't apply here. Therefore, a constant marginal rate of substitution leads to indifference curve to be linear curve in case of perfect substitutes as shown below.