Use the following to answer question:
Figure 4.11
-(Figure 4.11) The indifference curve _____ indicates that the two goods, X and Y, are relatively poor substitutes for one another, whereas the indifference curve _____ indicates that the two goods are close substitutes for one another.

Question

Use the following to answer question:
Figure 4.11

-(Figure 4.11) The indifference curve _____ indicates that the two goods, X and Y, are relatively poor substitutes for one another, whereas the indifference curve _____ indicates that the two goods are close substitutes for one another.

Quizplus · Accepted Answer

According to the figure, the flatter the indifference curve, the poorer the substitution between the two goods. Therefore, U₂ indicates that X and Y are relatively poor substitutes. On the other hand, U₁ implies that X and Y are close substitutes as it is steeper. Therefore, the answer is C, which has U₂ for the first indifference curve and U₁ for the second one.

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