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Indifference curve convexness
#cfa #cfa-level-1 #economics #microeconomics #reading-14-demand-and-supply-analysis-consumer-demand #section-3-utility-theory #study-session-4
Its curvature tells us something about the strength of his willingness to trade off one good for the other. The indifference curve is drawn to be convex when viewed from the origin. This indicates that the willingness to give up wine to obtain a little more bread diminishes the more bread and the less wine the bundle contains.
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3. UTILITY THEORY: MODELING PREFERENCES AND TASTES
d bread. Its negative slope simply represents that both wine and bread are seen as “good” to this consumer; in order to maintain indifference, a decrease in the quantity of wine must be compensated for by an increase in the quantity of bread. <span>Its curvature tells us something about the strength of his willingness to trade off one good for the other. The indifference curve in Exhibit 2 is characteristically drawn to be convex when viewed from the origin. This indicates that the willingness to give up wine to obtain a little more bread diminishes the more bread and the less wine the bundle contains. We capture this willingness to give up one good to obtain a little more of the other in the phrase marginal rate of substitution of bread for wine, MRS BW . The MRS BW i


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