Practice question · Multiple choice
Convex preferences mean averages are preferred to extremes, and the indifference curves bow inward. Why is that assumed rather than derived?
Hints
- Sketch a budget line against curves bowed the wrong way and find the best point.
- Ask what the assumption BUYS the model.
Show the answer
D. Because it delivers a unique interior optimum, not a corner
Why
Convexity is an assumption chosen for the behaviour it produces. Without it the tangency condition is not the answer, and the model predicts corner solutions we mostly do not observe.
Practise Consumer Preferences
The app has 8 more questions on this lesson, and keeps your place in the course. Business I is free to start.
More questions on Consumer Preferences
- Match each preference axiom to its meaning.
- The transitivity axiom says that preferring A to B and B to C forces preferring A to C. Why does violating it…
- Sort these goods into perfect substitutes vs perfect complements.
- The marginal rate of substitution typically diminishes as you move along an indifference curve to the right.