What is an indifference curve? Can two indifference curves intersect? Explain your answer
What will be an ideal response?
All bundles of goods along an indifference curve are equally preferred. Each indifference curve shows a different level of satisfaction. If two indifference curves intersect, this means that at the point of intersection, the same bundle of goods leads to two different levels of satisfaction. Since this is not logically possible, indifference curves cannot intersect. The higher the indifference curve, the higher the level of satisfaction.
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Consider the following five investments. If the nominal interest rate is five percent, which projects should be undertaken? (Note: The returns are for one period later.)
Investment Cost Returns A $100 $106 B 300 313 C 200 218 D 50 55 E 400 418
Milton Friedman first proposed the hypothesis that individuals consume a fraction of their expected, or ________, income
A) disposable B) net C) attainable D) permanent E) life-cycle
Each of the following is a source of financial capital for a corporation EXCEPT
A) issuing new stock. B) reinvestment of profit or retained earnings. C) issuing bonds or borrowing funds from a bank. D) dividends.
The formula to compute the spending multiplier is:
a. 1 / (MPC + MPS). b. 1 / (1 ? MPC). c. 1 / (1 ? MPS). d. 1 / (C + I).