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Using indifference curve analysis, derive a negatively sloped demand curve.
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Maria Dimech Group 2 25th January 2005 A) Using indifference curve analysis, derive a negatively sloped demand curve. An indifference curve is a line that shows all the possible combinations of two goods between which a person is indifferent. In other words, it is a line that shows the consumption of different combinations of two goods that will give the same utility (satisfaction) to the person. The basic assumption about tastes in indifference curve theory is that of a diminishing marginal rate of substitution: the less of one good and the more of another good the consumer has, the less willing he or she will be to give up some of the first good to get more of the second. The aim of indifference curve analysis is to analyse how a rational consumer chooses between two goods. In other words, example how the change in the wage rate will affect the choice...
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