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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
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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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