ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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Transcribed Image Text:1) Use the graph below to explain why, if all assumptions about preferences are met, thick indifference curves are not possible. Hint: take two points (bundles) on the graph.
### Explanation of the Graph
The graph is a typical representation used in microeconomics to demonstrate consumer preferences, where two goods are being considered. The horizontal axis, labeled as \( x_1 \), represents the quantity of one good, while the vertical axis, labeled as \( x_2 \), represents the quantity of another good.
#### Indifference Curve
The shaded region represents an "indifference curve," which typically illustrates combinations of two goods that provide a consumer with the same level of satisfaction or utility. Consumers are indifferent between any two points on this curve because they derive the same utility from each bundle of goods.
### Why Thick Indifference Curves Are Not Possible
Indifference curves are conventionally thin lines because, in economic theory, if two different sets of goods bundles provide the same utility, they must lie on the same curve.
If an indifference curve were thick, it would imply that there are multiple levels of utility within the same region, contradicting the assumption of a single utility level. This overlap means that it would be possible to have two different utility levels at the same point, which violates the basic principles of utility theory.
### Task
- **Assumptions**: Assumptions about consumer preferences include completeness, transitivity, and non-satiation.
- **Exercise Hint**: Consider any two points within the shaded region/curve. In typical situations, selecting any two points on a true indifference curve would mean both are at the same utility level.
Therefore, recognizing these principles and assumptions, thick indifference curves are theoretically impossible under standard assumptions about preferences.
Expert Solution
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The indifference curve of the consumer shows all the different combinations of two goods that provide the same level of total utility or satisfaction to the consumer. Total utility refers to the total amount of satisfaction received by the consumer from the consumption of a given amount of two commodities.
The slope of the indifference curve shows the rate at which the consumer is willing to substitute the consumption of one good in place of one another so that his total utility remains constant. The slope of the indifference curve is equal to the ratio of the marginal utilities of the two goods the consumer is consuming. The marginal utility of a good is defined as the extra utility the consumer is able to receive by consuming one more unit of a good.
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