Question

In the following Question, read the following statement and choose the correct alternative among those given below:

Statement 1: Higher indifference curve represents larger bundle of goods, which means more utility because of monotonic preference. 

Statement 2: Indifference curve analysis assumes diminishing marginal rate of substitution.

Options

• Both the Statements are true.

• Both the Statements are false.

• Statement 1 is true and Statement 2 is false.

• Statement 2 is true and Statement 1 is false.

Answer 1

Both the Statements are true.

Explanation:

With monotonic preferences, a larger bundle is preferred and gives greater satisfaction, so higher indifference curves represent higher utility. Indifference curve analysis also assumes diminishing MRS, which gives the curve its convex shape.