Preferences

(a)
(i) Define an indifference curve and briefly explain the nature of indifference curves for perfect substitutes and complementary goods. (7 marks)
(ii) Using separate diagrams, illustrate and explain the income and substitution effects of a price rise for both inferior and giffen goods. (10 marks)

(b) (i) Why does marginal rate of substitution decline from left to right along an
indifference curve? (1 mark)

(iii) Define the term marginal propensity to save and show its influence on the multiplier
(2 marks)
(Total: 20 marks)