Shape of an Indifference Curve
The characteristic shape of an indifference curve is generally expected to be both downward-sloping and convex to the origin. The downward slope is a result of the 'more is better' assumption. The convexity, which causes the curve to become flatter as one moves to the right, is a direct result of diminishing marginal rate of substitution (MRS). This principle stems from the plausible assumption that the more of one good an individual possesses, the more willing they are to trade it for the other good. Consequently, the MRS (the absolute value of the slope) decreases as the quantity of the good on the horizontal axis increases. If an indifference curve is expressed as an equation with one good as a function of the other, it forms a convex function.
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- Bundle B: 15 hours of free time and an income of $120.
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- Bundle C lies above and to the right of the curve I1.
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