Page 59 - DECO401_MICROECONOMIC_THEORY_ENGLISH

Microeconomic Theory

Notes
Fig. 4.6

Y

D A
Oranges

B
M
IC

O X
R S
Apples

2. Convex to the point of origin: Indifference curve is generally convex to the point of origin (i.e., sloping
downward). By convex curve it represents bowing inward to the point of origin. In other words, slope of
indifferent curve goes flatter as we shift forward along with curve. Slope of indifference curve is known as
rate of marginal substitution, because it presents the rate at which consumer substitutes one commodity
(like apple) with the other commodity (like orange) to maintain same level of satisfaction. In other words,
this property of indifference curve is based on the law of diminishing marginal rate of substitution.

The convex property of indifference curve is due to the diminishing marginal rate of substitution.

In Fig. 4.7, the indifference curve is Convex to the point of origin ‘O’. It signifies that marginal rate of
substitution of apples for oranges is diminishing. It means as the consumer gets more and more apples
he will tend to give up less quantity of oranges. The consumer gives up 3 oranges (AB) for getting one
additional apple, 2 oranges (CD) for getting another apple and 1 orange (EF) for getting yet another apple.
This situation conforms to real life. Consequently, indifference curve is convex to the point of origin.

Fig. 4.7

Y

10 A

Oranges 7 B D C E G
5
4
F IC

O X
1 2 34
Apples

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