Constant MRS at a Given Level of Free Time as a Consequence of Vertically Shifted Indifference Curves
A key consequence of indifference curves being vertical shifts of one another is that their slope is identical at any given level of the good on the horizontal axis (e.g., free time). This means the tangents to all indifference curves are parallel for a specific amount of free time, such as 18 hours. Therefore, the individual's Marginal Rate of Substitution (MRS) is determined solely by the amount of free time they have and is unaffected by changes in the amount of the other good (e.g., grain).
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Constant MRS at a Given Level of Free Time as a Consequence of Vertically Shifted Indifference Curves
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A consumer's preferences for two goods, free time (horizontal axis) and grain (vertical axis), are represented by indifference curves that are vertical shifts of one another. At 15 hours of free time, the consumer requires an additional 5 bushels of grain to move from indifference curve IC1 to a higher curve IC2. Based on this specific property of the preferences, what can be concluded?
Consider a consumer whose preferences for good X (horizontal axis) and good Y (vertical axis) are represented by indifference curves that are vertical shifts of one another. If this consumer needs 10 extra units of good Y to move from indifference curve A to indifference curve B when they have 5 units of good X, then they will need more than 10 units of good Y to make the same move from curve A to curve B when they have 20 units of good X.
Consider a consumer whose preferences for good X (horizontal axis) and good Y (vertical axis) are represented by indifference curves that are vertical shifts of one another. If this consumer needs 10 extra units of good Y to move from indifference curve A to indifference curve B when they have 5 units of good X, then they will need more than 10 units of good Y to make the same move from curve A to curve B when they have 20 units of good X.
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Figure 5.3b: Constant MRS at a Given Level of Free Time
Learn After
Consider an individual's preferences for daily free time (measured on the horizontal axis) and units of consumption (measured on the vertical axis). A key feature of this individual's preferences is that their indifference curves are parallel to each other. Point A represents a combination of 18 hours of free time and 60 units of consumption. Point B, which is on a higher indifference curve, represents a combination of 18 hours of free time and 80 units of consumption. How does the individual's Marginal Rate of Substitution (MRS) of consumption for free time at Point A compare to their MRS at Point B?
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An individual's preferences for consumption (vertical axis) and free time (horizontal axis) are represented by a set of parallel indifference curves. This implies that as the individual's level of consumption increases, their willingness to give up consumption for an additional hour of free time also increases, even if their amount of free time remains unchanged.
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Match each description of an individual's preferences for consumption (vertical axis) and free time (horizontal axis) with the corresponding graphical property of their indifference curves.
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An individual's preferences for daily consumption (vertical axis) and free time (horizontal axis) are represented by a set of indifference curves that are parallel to each other. Consider three potential combinations of consumption and free time:
- Point X: 16 hours of free time, 50 units of consumption.
- Point Y: 16 hours of free time, 70 units of consumption.
- Point Z: 16 hours of free time, 90 units of consumption.
How does the individual's willingness to trade consumption for an additional hour of free time (their Marginal Rate of Substitution) compare across these three points?
An individual's preferences for daily consumption (measured on the vertical axis) and free time (measured on the horizontal axis) are represented by a set of parallel indifference curves. At a point where they have 15 hours of free time and 50 units of consumption, their Marginal Rate of Substitution (MRS) is 8. This means they are willing to trade 8 units of consumption for one additional hour of free time. What is their MRS at a different point where they have 15 hours of free time but 75 units of consumption?