Explain the following statements with economic reasoning and appropriate diagram

Question

Explain the following statements with economic reasoning and appropriate diagram(s): A production possibility curve (PPC) slopes downward and is, more likely, concave to the origin A demand curve slopes downward A supply curve slopes upward An indifference curve slopes downward and is convex to the origin The optimal purchasing/utility maximizing rule is satisfied when a budget line is tangent to an indifference curve Marginal cost curve is a mirror image of a marginal product curve Marginal cost curve passes through the minimum point of an average variable cost curve. Total product increases, as long as marginal product is positive, but at different rates.

Explanation / Answer

a. The PPC is downward sloping because to increase the production of one good we have to decrease the production of the other. It is concave to the origin or slope is increasing because to produce more of one good the amount of another good to be sacrificed increases. Thus, PPC is downward sloping and is concave to the origin.

b. The demand curve shows relation between price and quantity purchased of a good, other things remaining constant. Thus, as the price of the good increases, the demand of the good will fall.Thus, the demand curve is downward sloping.

c. Supply curve shows relation between price and quantity supplied of the good, other things remaining constant. As the price of the good increases, the quantity supplied of the good will increase. Thus, supply curve will slope upwards.

d. Indifference curve slopes downward because as the consumption of one good increases, the consumption of another good falls to keep the level of utility constant. It is convex to the origin because of Diminishing Marginal Utility of the good.

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