which one of the following is not an assumption of the indifference curve analysis? a. rationalitay of consumer b. utility is cardinal c. diminishing marginal rate of substitution d. consistency and transitivity of choice
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Answer:
C. Diminishing MRS(Marginal Rate of Substitution).
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Answer:
Utility is ordinal. Therefore, the option (b) is not an assumption of the indifference curve analysis.
Explanation:
An indifference curve is the locus of all those combination of any two goods that provided the same level of satisfaction to the customer.
- The indifference curve (IC) analysis represents the satisfaction or pleasure that a customer can leftover the identical lengthways of an IC.
- The conditions for the indifference curve (IC):-
(i) At least two goods in the process of consumption,
(ii) Commodities have some relation
(iii) Some level of satisfaction is must.
Assumptions of the indifference curve analysis:-
- The customer must be rational.
- Ordinal measurement of utility.
- Marginal rate of substitution diminishes
- Consistency and transitivity in choice
- Two goods are divisible
- Customer consumes only two goods.
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