Indifference Curves and Budget Constraints > Unusual Preferences

Solution

  1. Max's indifference curves look as shown below. His preferred direction is toward the origin: IC3 is better than IC2 and IC2 is better than IC1.

  2. Max's curves become steeper from left to right. That's a consequence of his preferences being convex. You can see that his preferences are convex by picking two bundles on one indifference curve and drawing a straight line between them. All bundles along the line are mixtures of the two original bundles. Convexity means that the mixed bundles should be preferred to the originals. The diagram below illustrates this point: Max prefers mixed bundle C is to bundles A and B.

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Peter J Wilcoxen, The Maxwell School, Syracuse University
Revised 11/08/2004