9708 · 7.2
Common exam mistakes on 9708 Indifference curves and budget lines. Learn what loses marks, then practise the topic with Examiner’s Ink.
In exams, when asked to illustrate consumer equilibrium, you must draw a clear diagram. Label the axes (e.g., Good X, Good Y), draw a straight, downward-sloping budget line, and a convex indifference curve that is just tangent to it. Mark the point of tangency as the equilibrium point (e.g., point E). It is crucial that the indifference curve does not cross the budget line. Clearly state the equilibrium condition (MRS = Px/Py) in your explanation.
Always draw three elements on one diagram: at least two ICs (label U₁, U₂), the budget line(s), and the tangency point. Use a pivot for price changes and a parallel shift for income changes.
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).
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.
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.