Question 1

Can two indifference curves for the same consumer intersect?

Accepted Answer

No, this is a logical impossibility. If two curves were to intersect, the point of intersection would represent a combination of goods that yields two different levels of utility simultaneously, which is a contradiction. It would violate the assumption of transitivity in consumer preferences (if A>B and B=C, then A>C, not A=C).

Question 2

Is the utility-maximising point always in the middle of the budget line?

Accepted Answer

No, not at all. The utility-maximising point is determined by the tangency between the budget line and an indifference curve. The position of this tangency point depends entirely on the consumer's unique preferences, which are reflected in the shape and position of their indifference map. A consumer with a strong preference for one good over the other will have an equilibrium point closer to one of the axes.

Question 3

Why is the slope of the budget line negative?

Accepted Answer

The slope is negative because it represents a trade-off dictated by a fixed budget. To afford more of one good, given fixed prices and income, a consumer must necessarily purchase less of the other good. This inverse relationship between the quantities of the two goods that can be purchased results in a negative slope, which represents the opportunity cost.

Indifference curves and budget lines

What you need to know

Indifference curves and budget lines