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I encountered this question in Microeconomics by Pindyck and Rubinfeld.

The question says that "Suppose Jones and Smith have each decided to allocate $1000 per year to an entertainment budget in the form of hockey games or rock concerts. They both like hockey games and rock concerts and will choose to consume positive quantities of both goods. However, they differ substantially in their preferences for these two forms of entertainment. Jones prefers hockey games to rock concerts, while Smith prefers rock concerts to hockey games."

We are asked to draw indifference curves for both of them.

A solution manual showed that the indifference curves should be convex to the origin with different degrees of steepness. However, I believe that the curves should be concave to the origin as convex curves show a tendency to diversify one's bundle, which is certainly not the case here. Also, convex curves at some point will say that one of them is ready to leave more of what he prefers more to get just $1$ unit of what he prefers less. That too seems a contradiction to me. I am of the belief that here the indifference curves should be concave to the origin with different degrees of steepness for the both the consumers.

Kindly help me reach the right answer.

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  • $\begingroup$ "which is certainly not the case here" Why? $\endgroup$ – Giskard Jan 15 at 9:54
  • $\begingroup$ Because it has been mentioned that they like one good more than the other, which shows that when faced with a choice to diversify their bundle, they would rather not do that. $\endgroup$ – Harsh Sharma Jan 15 at 11:13
  • $\begingroup$ Do you have a favorite TV show? You like that better than other shows, right? Is that the only TV show you ever watch? You do not "diversify", never voluntarily watch watch anything else ever? $\endgroup$ – Giskard Jan 15 at 14:33
  • $\begingroup$ Granted, the "prefers hockey games to rock concerts" etc. phrasing of the exercise is quite unfortunate, but it is made clear that they do in fact diversify, they will "consume positive quantities of both goods". $\endgroup$ – Giskard Jan 15 at 14:34
  • $\begingroup$ @Giskard So that ultimately means that the books, inspite of the unfortunate phrasing, wants us to look towards the "general" phenomenon of how individuals make their preferences? $\endgroup$ – Harsh Sharma Jan 16 at 8:20

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