Question

Suppose that leisure and consumption goods are perfect substitutes. In this case, an indifference curve is described by the equation u = al+bC, where a and b are positive constants and u is the level of utility. That is, a given indifference curve has a particular value for u, with higher indifference curves having higher values for u.

Answer 1

Indifference curves represent combinations of goods offering the same utility, and can be linear for perfect substitutes like leisure and consumption goods, with higher curves indicating greater utility.

Step-by-step explanation:

Understanding Indifference Curves

An indifference curve illustrates various combinations of goods between which a consumer is indifferent; that is, each combination yields the same level of satisfaction or utility. When leisure and consumption goods are perfect substitutes, as posited in the student's question, the indifference curve can be linear, described by the equation u = aL + bC, where a and b are positive constants, u represents utility, L stands for leisure, and C is for consumption goods. Higher indifference curves imply greater utility. The linearity reflects constant tradeoff rates between leisure and consumption goods without diminishing marginal utility, which is unusual in real-life scenarios where indifference curves typically curve due to the principle of diminishing marginal utility.