Question
Why is an Indifference curve generally convex to the origin?
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Answer
- As, We know quantity of one commodity increases, its marginal rate of substitution falls because of law of diminishing marginal utility. Marginal rate of substitution is a slope of Indifference curve and whenever slope (MRS) decreases it makes the curve convex to the point of origin.
- In the above diagram, units of y are measured on vertical axis and units of x on horizontal axis. When the consumer moves from combination A (1x + 25y) to B (2x + 20y), he acquires one additional unit of x and forgoes (sacrifice) 5 units of y, if he wants to get the same level of satisfaction. The consumer has to reduce the consumption of y when he increases the consumption of x. The number of units of good y that the consumer is willing to sacrifice for an additional unit of good x, so as to maintain the same level of satisfaction is technically called the marginal rate of substitution of x for y and is denoted by MRSxy.
- So, The MRSxy when the consumer move from combination A to B is 5 : 1, further as the consumer move from combination B to C, he acquires one more units of x, but the consumer forgoes a smaller number of y, i.e., MRS at this stage is 4 : 1. It may be observed now that MRS diminishes as the consumer moves from combination A to B, B to C, C to D, D to E. The consumer forgoes less and less units of y as he acquires additional unit of x.
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