Indifference curves illustrateGroup of answer choicesa firm's profits.the prices of two goods.a consumer's preferences.a consumer's budget.

An indifference curve shows,Group of answer choicesexpenditure bundles that the consumer can afford given the prices.consumption bundles that give the consumer the same level of satisfactionconsumption bundles that give the consumer different level of satisfaction.expenditure bundles that the consumer is least willing to make.

There is a general procedure for constructing indifference curves given a “verbal” description of the preferences. First plop your pencil down on the graph at some consumption bundle (x1, x2). Now think about giving a little more of good 1, Δx1, to the consumer, moving him to (x1 +Δx1, x2). Now ask yourself how would you have to change the consumption of x2 to make the consumer indifferent to the original consumption point? Call this change Δx2. Ask yourself the question “For a given change in good 1, how does good 2 have to change to make the consumer just indifferent between (x1 + Δx1, x2 + Δx2) and (x1, x2)?” Once you have determined this movement at one consumption bundle you have drawn a piece of the indifference curve. Now try it at another bundle, and so on, until you develop a clear picture of the overall shape of the indifference curves.There is a general procedure for constructing indifference curves given a “verbal” description of the preferences. First plop your pencil down on the graph at some consumption bundle (x1, x2). Now think about giving a little more of good 1, Δx1, to the consumer, moving him to (x1 +Δx1, x2). Now ask yourself how would you have to change the consumption of x2 to make the consumer indifferent to the original consumption point? Call this change Δx2. Ask yourself the question “For a given change in good 1, how does good 2 have to change to make the consumer just indifferent between (x1 + Δx1, x2 + Δx2) and (x1, x2)?” Once you have determined this movement at one consumption bundle you have drawn a piece of the indifference curve. Now try it at another bundle, and so on, until you develop a clear picture of the overall shape of the indifference curves.

Consider an individual with preferences defined over two goods, X1 and X2. This consumer has preferences such that she must have 1/3 of a unit of X1 with every 1/2 unit of X2. In addition, let P1 = 1, P2 = 1, and suppose this individual has an income of $45,000. (a) Draw indifference curves with X1 on the horizontal axis to depict this consumer’s 1 preferences. Comment.

Compare and contrast the marginal utility approach with the indifference curve approach inunderstanding consumer behaviour.

If there are only two goods, if more of good 1 is always preferred to less, and if less of good 2 is always preferred to more, then:Group of answer choicesindifference curves slope downwards.indifference curves slope upwards.indifference curves may cross.indifference curves could take the form of ellipses.