CHAPTER • Consumer Behavior 75 Thus the MRS at any point is equal in magnitude to the slope of the indifference curve In Figure 3.5, for example, the MRS between points A and B is 6: The consumer is willing to give up units of clothing to obtain additional unit of food Between points B and D, however, the MRS is 4: With these quantities of food and clothing, the consumer is willing to give up only units of clothing to obtain additional unit of food CONVEXITY Also observe in Figure 3.5 that the MRS falls as we move down the indifference curve This is not a coincidence This decline in the MRS reflects an important characteristic of consumer preferences To understand this, we will add an additional assumption regarding consumer preferences to the three that we discussed earlier in this chapter (see page 70): Diminishing marginal rate of substitution: Indifference curves are usually convex, or bowed inward The term convex means that the slope of the indifference curve increases (i.e., becomes less negative) as we move down along the curve In other words, an indifference curve is convex if the MRS diminishes along the curve The indifference curve in Figure 3.5 is convex As we have seen, starting with market basket A in Figure 3.5 and moving to basket B, the MRS of food F for clothing C is - ⌬C/⌬F = -(-6)/1 = However, when we start at basket B and move from B to D, the MRS falls to If we start at basket D and move to E, the MRS is Starting at E and moving to G, we get an MRS of As food consumption increases, the slope of the indifference curve falls in magnitude Thus the MRS also falls.2 Is it reasonable to expect indifference curves to be convex? Yes As more and more of one good is consumed, we can expect that a consumer will prefer to give up fewer and fewer units of a second good to get additional units of the first one As we move down the indifference curve in Figure 3.5 and consumption of food increases, the additional satisfaction that a consumer gets from still more food will diminish Thus, he will give up less and less clothing to obtain additional food Another way of describing this principle is to say that consumers generally prefer balanced market baskets to market baskets that contain all of one good and none of another Note from Figure 3.5 that a relatively balanced market basket containing units of food and units of clothing (basket D) generates as much satisfaction as another market basket containing unit of food and 16 units of clothing (basket A) It follows that a balanced market basket containing, for example, units of food and units of clothing will generate a higher level of satisfaction Perfect Substitutes and Perfect Complements The shape of an indifference curve describes the willingness of a consumer to substitute one good for another An indifference curve with a different shape implies a different willingness to substitute To see this principle, look at the two somewhat extreme cases illustrated in Figure 3.6 With nonconvex preferences, the MRS increases as the amount of the good measured on the horizontal axis increases along any indifference curve This unlikely possibility might arise if one or both goods are addictive For example, the willingness to substitute an addictive drug for other goods might increase as the use of the addictive drug increased In §2.1, we explain that two goods are substitutes when an increase in the price of one leads to an increase in the quantity demanded of the other