Question

If both X₁ and X₂ are "bads", utility will increase:

A. As X₁ or X₂ increases
B. As the marginal rate of substitution increases
C. As we move to indifference curves closer to the origin (point (0,0))
D. As we move to indifference curves further from the origin (point (0,0))

Answer 1

Utility increases for "bads" with movement toward the origin on indifference curves, reflecting decreased consumption of undesirable goods. Marginal rate of substitution and budget constraints are important in finding utility-maximizing points. The correct option is c.

Step-by-step explanation:

The student asked about the increase in utility when dealing with "bads" or undesirable goods. The answer to the question is that utility will increase as we move to indifference curves closer to the origin (point (0,0)), which is option C.

This happens because, in the context of "bads", moving closer to the origin implies reducing the amount of undesirable goods consumed, thereby increasing utility. The marginal rate of substitution (MRS) represents the rate at which a person is willing to give up one good to gain an equal level of utility from another good.

The budget constraint determines the combination of goods that can be purchased given a person's income and the prices of goods. The utility-maximizing choice is found at the point where the budget constraint is tangent to an indifference curve.

Changes in prices can lead to both a substitution effect and an income effect, influencing the quantity of goods a consumer will buy. The correct option is c.