Chapter 10, Problem 15P

To determine

Concept introduction:

Budget Line: It is defined as the combination of all goods that a consumer can purchase, exhausting all his income. The formula for the budget line is:

Here,

• is the quantity of good X.
  
• is the quantity of good Y.
  
• is the total income.
  
• is the price of good X.
  
• is the price of good Y.
  

Indifference Curve: The line that shows the goods, providing the same satisfaction level is known as the indifference curve.

The different properties of indifference curve are:

• Two indifference curve lines never intersect each other.
• The farther the Indifference Curve is from the origin, the more utility it has.
• Indifference Curve slopes downwards because the more is better.
• Indifference Curve has a convex shape because of the diminishing marginal utility which states that the marginal utility of an additional unit decreases.

Inferior goods: It is a type of a good in which the demand declines with a rise in the income. Example; the demand for potato decreases, as the income increases because we prefer green vegetables at higher incomes.