Question

Why must the indifference curve be convex to the origin at the equilibrium point?

Options

• It ensures constant marginal substitution

• It allows the budget line to cut the curve

• It ensures diminishing MRS and stable equilibrium

• It ensures that prices remain fixed

Answer 1

It ensures diminishing MRS and stable equilibrium

Explanation:

Convexity guarantees a diminishing marginal rate of substitution, leading to a stable satisfaction point.