Question

1.14. What are the relationships among marginal utilities, the marginal rate of substitution, and the slopes of indifference curves?

1.15. Explain how the assumption that "a larger basket of commodities is always preferred to a smaller one" implies (a) that indifference curves lying farther out from the origin are associated with higher utility values, (b) that marginal utilities are positive, and (c) that indifference curves are downward sloping.

Answer 1

1.14 The slope pf indifference curve shows the rate at which consumer is willing to substitute one good for the other, and this slope is known as the MRS marginal rate off substitution. MRS is calculated by taking ratio of Marginal utility of goodx and good y. if we say MRS or Slope of IC both things are same.MRS depends on MU.

1.15 a) Larger basket is always preferred to lower basket because of the assumption monotonocity ie., more is better or more is preferred . If the consumer is preferred more of the goods then it will lie on higher IC and higher IC gives higher level of satisfaction or higher utility. A consumer is utility maximiser always preferred higher utility level.

b) Marginal Utilities are positive : It means that a consumer is always preferred larger basket of commodities to lower basket of commodities upto the point where is Marginal utility from each additional unit of good is positive.

If marginal utility of the good that he is preferring is not positive that it means Marginal utility is negative or zero and in both case consumer will prefer not to consume more because more units is giving him disutility or negative marginal utility So to prefer more to less the marginal utility from both the goods should be positive.

C) The IC slopes downward this is because decreasing MRS. Due to diminishing marginal rate of substitution. More of one good implies less of other and initiall the rate at which they are substituting is high and after a point when consumer have more of one good and less of other then Marginal utility of the good which has large qty in his basket is declining because of law of diminishing marginal utility and which good has less qty the marginal utility is increasing hence due to this MRS is declining and IC sloped downward.