Sarah Jones believes that Coke and Pepsi are perfect substitutes. That is, she i

Question

Sarah Jones believes that Coke and Pepsi are perfect substitutes. That is, she is equally happy with a Coke or a Pepsi and cannot tell the difference between them. Her indifference curves:

a.

are linear, with slope equal to –1.

b.

are upward-sloping.

c.

are linear, with slope equal to 1.

d.

cross where she consumes equal amounts of Coke and Pepsi.

e.

cannot be defined, since she likes both equally well.

a.

are linear, with slope equal to –1.

b.

are upward-sloping.

c.

are linear, with slope equal to 1.

d.

cross where she consumes equal amounts of Coke and Pepsi.

e.

cannot be defined, since she likes both equally well.

Explanation / Answer

a.

are linear, with slope equal to –1.

An indifference curve is a graph showing different bundles of goods between which a consumer isindifferent. That is, at each point on the curve, the consumer has no preference for one bundle over another. One can equivalently refer to each point on the indifference curve as rendering the same level of utility (satisfaction) for the consumer. In other words an indifference curve is the locus of various points showing different combinations of two goods providing equal utility to the consumer. since Coke and pepsi are perfect substitutes an increase in coke's consumption will equally impact reduction is pepsi's consumption or vice versa giving a slope of -1.

a.

are linear, with slope equal to –1.

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