Answered: Briefly explain why the indifference…

Economics (MindTap Course List)

13th Edition

ISBN:9781337617383

Author:Roger A. Arnold

Publisher:Roger A. Arnold

ChapterE: Budget Constraint And Indifference Curve Analysis

Section: Chapter Questions

Problem 2QP

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Question

Briefly explain why the indifference curve is downward sloping

Expert Solution

Step 1

According to the consumer's theory, an individual maximizes his utility by consuming at a point where the budget constraint of the individual becomes tangent to the budget constraint of the individual. At the utility-maximizing point, the slope of the budget constraint becomes equal to the slope of the indifference curve of the consumer.

The budget constraint of the consumer shows the different combinations of two goods that an individual can consume with his given money income and price of two goods. The slope of the budget constraint shows the rate at which the consumer can trade one good for another in the product market.