Assume that a consumer\'s indifference curve is a downward-sloping straight line

Question

Assume that a consumer's indifference curve is a downward-sloping straight line. As the consumer moves from left to right along the horizontal axis, the consumer's marginal rate of substitution 0 a, decreases. remains constant. Oc. increases O d, increases. then decreases. QUESTION 3 Giiffen goods have positively-sloped demand curves because they are O a inferior goods with no substitution effect. Ob. inferior goods for which the substitution effect outweighs the income effect. c. inferior goods for which the income effect outweighs the substitution effect. O d normal gods with no substitution effect.

Explanation / Answer

2. Ans: remains constant

Explanation:

The marginal rate of substitution varies along the indifference curve if the curve is bowed inward and it is constant along the indifference curve if the curve is a straight line. Thus, option [b] is the correct answer.

3. Ans: inferior goods for which the income effect outweighs the substitution effect.

Explanation:

the substitution effect means the increase in the consumption of a good when price decreases, while the income effect can either increase or decrease consumption of a good when price decreases.

Since Giffen goods have demand curves that slopes upward. It is considered as highly inferior goods for which income effect dominates the substitution effect such that the price and quantity demanded move in the same direction. Thus, option [c] is the correct answer.

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