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The negative slope of the indifference curve reflects the assumption of the monotonicity of consumer's preferences, which generates monotonically increasing utility functions, and the assumption of non-satiation (marginal utility for all goods is always positive); an upward sloping indifference curve would imply that a consumer is indifferent ...
Right graph: With fixed probabilities of two alternative states 1 and 2, risk averse indifference curves over pairs of state-contingent outcomes are convex. In economics and finance , risk aversion is the tendency of people to prefer outcomes with low uncertainty to those outcomes with high uncertainty, even if the average outcome of the latter ...
Indifference curves C 1, C 2 and C 3 are shown. Each of the different points on a particular indifference curve shows a different combination of risk and return, which provide the same satisfaction to the investors. Each curve to the left represents higher utility or satisfaction. The goal of the investor would be to maximize their satisfaction ...
At this equilibrium point, the slope of the highest indifference curve must equal the slope of the production function. Recall that the marginal rate of substitution is the rate at which a consumer is ready to give up one good in exchange for another good while maintaining the same level of utility. [ 6 ]
Under the standard assumption of neoclassical economics that goods and services are continuously divisible, the marginal rates of substitution will be the same regardless of the direction of exchange, and will correspond to the slope of an indifference curve (more precisely, to the slope multiplied by −1) passing through the consumption bundle in question, at that point: mathematically, it ...
The set of all these efficient points that could be traded to is the contract curve. In the graph below, the initial endowments of the two people are at point X, on Kelvin's indifference curve K 1 and Jane's indifference curve J 1. From there they could agree to a mutually beneficial trade to anywhere in the lens formed by these indifference ...
Middle graph: In standard deviation-expected value space, risk averse indifference curves are upward sloped. Right graph: With fixed probabilities of two alternative states 1 and 2, risk averse indifference curves over pairs of state-contingent outcomes are convex.
This translates to a linear expansion path in income: the slope of indifference curves is constant along rays beginning at the origin. [1]: 482 This is to say, the Engel curve for each good is linear. Furthermore, the indirect utility function can be written as a linear function of wealth :