Suppose the consumer's indifference curves are concave (i.e.,bowed away from the origin)instead of convex.In this situation, A) along an indifference curve,the marginal value of X is falling as more X and less Y is consumed. B) all baskets on the budget line give the consumer the same level of satisfaction. C) the marginal value of X must equal P_X/P_Y at the consumer's optimum. D) the consumer's optimum is always a corner solution.

Question

Quizplus · Accepted Answer

In the context of consumer theory, indifference curves are typically convex to the origin, reflecting diminishing marginal rates of substitution between goods. If the indifference curves are concave (bowed away from the origin), it suggests that the consumer experiences increasing marginal rates of substitution. This unusual situation implies that as the consumer substitutes one good for another, they are willing to give up increasingly larger amounts of the second good to obtain additional units of the first good. This scenario often leads to a corner solution at the consumer's optimum, where the consumer chooses to consume only one of the two goods because the marginal value of one good becomes significantly higher than the other as consumption increases.

Suppose the Consumer's Indifference Curves Are Concave (I