Indifference curves are normally convex to the origin because of the principle of:
Aconstant marginal utility of money
Bdiminishing marginal rate of substitution
Cincreasing marginal rate of substitution
Dconstant marginal rate of substitution
Answer & Solution
Correct answer: B. diminishing marginal rate of substitution
1. As more X is substituted for Y, the consumer gives up less and less Y for each extra X.
2. This diminishing marginal rate of substitution produces the convex shape.
3. Constant MRS gives a straight line and increasing MRS gives concavity, while MU of money is unrelated, so those options are wrong.
_Source: ICAI BoS CA Foundation Paper 4 Business Economics, Ch 2 Unit II "Theory of Consumer Behaviour", p.16_
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