Identify which of the following is not true for the Indifference Curves. Give valid reasons for choice of your answer:

a. Lower indifference curve represents lower level of satisfaction.

b. Two regular convex to origin indifference curves can intersect each other.

c. Indifference curve must be convex to origin at the point of tangency with the budget line at the consumer’s equilibrium.

d. Indifference curves are drawn under the ordinal approach to consumer equilibrium.

OR

A consumer has total money income of Rs 250 to be spent on two goods X and Y with prices of Rs 25 and Rs 10 per unit respectively. On the basis of the information given, answer the following questions:

a. Give the equation of the budget line for the consumer.

b. What is the value of slope of the budget line?

c. How many units can the consumer buy if he is to spend all his money income on good X?

d. How does the budget line change if there is a fall in price of good Y?

Open in App

Solution

Out of the given options, (B) is incorrect. Indifference Curves have a property that two ICs cannot intersect.
Suppose, there are any two ICs intersecting each other. As per the figure
A =C ( on IC1)
D= E (on IC2)
But if we see the peculiarity of point B (the point of intersection), this would result into absurd situation of A=C=B & D=C=B, which is not possible, as they are violating the basic definition of the Indifference Curves.

OR

(a) PxQx + PyQy = M
25Qx + 10Qy = 250

(b) Slope of Budget Line = $(-) \frac{P x}{P y} = (-) \frac{25}{10} = (-) 2.5$

(c) If Qy is to be Zero
25Qx + 10Qy = 250
25Qx + 10(0) = 250
Qx = 250/25 = 10 units

(d) If Py falls the consumer will be able to buy more of good Y in the same money income pushing the Y-intercept of the Budget Line away from origin, keeping the X-intercept constant. (shifts outwards)

Suggest Corrections

Similar questions

a) A consumer, Mr Aman is in state of equilibrium consuming two goods X and Y, with given prices Px and Py . What will happen if $\frac{M U x}{P x} > \frac{M U y}{P y}$ ?

b) Identify which of the following is not true for the Indifference Curves theory. Give valid reasons for choice of your answer:

a. Lower indifference curve represents lower level of satisfaction.
b. Two indifference curves can intersect each other.
c. Indifference curve must be convex to origin at the point of tangency with the budget line at the consumer’s equilibrium.
d. Indifference curves are drawn under the ordinal approach to consumer equilibrium.

A consumer has total money income of Rs 500 to be spent on two goods X and Y with prices of Rs 50 and Rs 10 per unit respectively. On the basis of the given information, answer the following questions:
a. Give the equation of the budget line for the consumer.
b. What is the value of slope of the budget line?
c. How many units can the consumer buy if he is to spend all his money income on good X?
d. How does the budget line change if there is a 50% fall in price of good Y?

A consumer consumes only two goods. For the consumer to be in equilibrium why must Marginal Rate of Substitution between the two goods must be equal to the ratio of prices of these two goods? Is it enough to ensure equilibrium?

A consumer consumes only two goods. Why is the consumer said to be in equilibrium when he buys only that combination of the two goods which lies at that point on the Indifference curve where the budget line is tangent to the indifference curve? Explain. Use diagram.

A consumer consumes only two goods. For the consumer to be in equilibrium why must marginal rate of substitution be equal to the ratio of prices of the two goods? Explain.

A consumer consumes only two goods. Why is the consumer in equilibrium when he buys only that combination of the two goods that is shown at the point of tangency of the budget line with an indifference curve? Explain.

Explain when a consumer, consuming only two commodities X and Y, attains equilibrium under the utility approach.

Q. Given the consumer's indifference map and the money income, the equilibrium position of the consumer will be on the indifference curve, which is ____________.

Q. Given the budget line a consumer will try to opt for _______ level of indifference curve.

Join BYJU'S Learning Program