You are given the following two possible community indifference curve maps for a country, where curves S₁ and S'₁ pertain to income distribution #1 and curves S₂ and S'₂ pertain to income distribution #2. The differing shapes of the curves in these two maps could reflect the fact that in income distribution #2, in comparison with income distribution #1, a greater share of total income is held by individuals who value __________. In addition, in this diagram, point B is preferred to point A __________. A) good X relatively more highly than good Y; on the basis of income distribution #2 but not on the basis of income distribution #1 B) good X relatively more highly than good Y; on the basis of income distribution #1 but not on the basis of income distribution #2 C) good Y relatively more highly than good X; on the basis of income distribution #2 but not on the basis of income distribution #1 D) good Y relatively more highly than good X; on the basis of income distribution #1 but not on the basis of income distribution #2

Question

Quizplus · Accepted Answer

The different shapes of the curves suggest that in income distribution #2, individuals who value good Y relatively more highly than good X hold a greater share of total income compared to income distribution #1. Point B is preferred to point A in income distribution #1 but not in income distribution #2, as the community indifference curve is higher at point A in income distribution #2. This suggests that point B is preferred when individuals who value good Y more hold a greater share of total income (income distribution #1), but not when individuals who value good X more hold a greater share of total income (income distribution #2). Therefore, the answer is option D.

You Are Given the Following Two Possible Community Indifference Curve