Suppose Abed’s indifference curves for two goods are shown by the figure below. What must be true about Abed’s consumer behaviour?

Question

BlackTom AI · Accepted Answer

To tackle this question, let’s assess what the indifference curves depicted imply about Abed’s preferences for two goods.
Option a: 'He will spend his entire income on whichever good has the lower price.' This statement describes a simple corner solution that would occur if a consumer strictly preferred the cheaper good and ignored the other, which is not generally indicated by a standard indifference-curve diagram where preferences are represented by smooth, curved, or straight lines. The diagram in the prompt does not show a clear substitution pattern based solely on price; it conveys a different property of the goods.
Option b: 'A change in the price of Good 1 will not result in any income effect.' An income effect occurs when a price change changes the consumer’s purchasing power, which can affect quantity demanded. Whether the diagram shows a particular shape does not by itself guarantee there is no income effect; this statement would require specific analysis of compensated vs. uncompensated demand, which the indifference-curve picture alone does not establish.
Option c: 'The marginal rate of substitution between the goods is always the same, regardless of which bundle Abed has.' If the MRS were constant for all bundles, the indifference curves would be straight lines with a constant slope, not the stepped or kinked shapes shown. The figure suggests something else about how the goods can be consumed together, not a constant MRS.
Option d: 'The goods are perfect complements.' When goods are perfect complements, the consumer’s indifference curves are L-shaped (right-angle) and the consumer always consumes them in fixed proportions. The plotted bundles in the figure show a pattern consistent with such right-angle behavior, where only certain combinations are preferred, and any movement away from the fixed-proportion bundles reduces utility. This shape is the classic hallmark of perfect complements, explaining why the consumer behaves as if the two goods must be consumed together in a specific ratio.
In summary, the diagram’s indication of right-angled, corner-like indifference curves aligns with the notion of perfect complements, whereas the other statements describe alternative, incorrect interpretations of the depicted preferences.

ECC2000 - ECC5900 - S2 2025 Sample final exam

Suppose Abed’s indifference curves for two goods are shown by the figure below. What must be true about Abed’s consumer behaviour?

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