Question

In: Economics

assumption of diminishing marginal rate of substitution means that

assumption of diminishing marginal rate of substitution means that

Solutions

Expert Solution

Marginal Rate of Substitution is the rate at which a consumer is willing to sacrifice one good for an additional unit of the other good.

- If a consumer has a good in abundance and the other good in scarce, he will be willing to give up more units of the abundant good to consume one additional unit of the scarce good since it would not make much of a difference to him if he sacrifices greater number of the abundant good.

- However, as the number of the abundant good starts reducing, the consumer becomes less willing to sacrifice huge amounts of this good for an additional unit of the 'earlier' scarce good. This is because the consumer has a lower quantity of the earlier abundant good and is unwilling to sacrifice huge amounts of it.

- This concept of a decline in willingness to sacrifice higher and higher amounts of one good for an additional unit of the other good is the 'diminishing marginal rate of substitution'.

As a good becomes scarce, the consumer becomes less willing to give up high amounts of that good for the consumption of an additional unit of another good.

Rahul Sunny answered 1 year ago
Next > < Previous

Related Solutions

Write short notes on the following concepts; Property right Concave function Diminishing marginal rate of substitution...
Write short notes on the following concepts; Property right Concave function Diminishing marginal rate of substitution Mixed strategy Contract curve Marginal physical products.
Brigitte purchases two goods: gummy bears and M&M’s. She has a diminishing marginal rate of substitution...
Brigitte purchases two goods: gummy bears and M&M’s. She has a diminishing marginal rate of substitution of gummy bears for M&M’s. Let x denote the amount of gummy bears purchased and y the amount of M&M’s purchased. Suppose the price of gummy bears decreases from P x 1 to P x 2 . On a clearly labeled graph, illustrate the income and substitution effects of the price change on the consumption of gummy bears. Do so for each of the...
Brigitte purchases two goods: gummy bears and M&M’s. She has a diminishing marginal rate of substitution...
Brigitte purchases two goods: gummy bears and M&M’s. She has a diminishing marginal rate of substitution of gummy bears for M&M’s. Let x denote the amount of gummy bears purchased and y the amount of M&M’s purchased. Suppose the price of gummy bears decreases from P x 1 to P x 2 . On a clearly labeled graph, illustrate the income and substitution effects of the price change on the consumption of gummy bears. Do so for each of the...
(a) Does the assumption of diminishing marginal product of an inputs x1 and x2 imply strictly...
(a) Does the assumption of diminishing marginal product of an inputs x1 and x2 imply strictly convex isoquant curves? (b)Does the assumption of strictly convexity in the isoquant curves imply diminishing marginal products to input factors x1 and x2.
If marginal rate of substitution between wine and cheese is -1 and the marginal rate of...
If marginal rate of substitution between wine and cheese is -1 and the marginal rate of the product transformation between two goods is -2, what should be done in this economy to increase consumers’ utility? Support your answer by a graph.
a) explain what the law of diminishing(marginal) return means. Does it apply to the short or...
a) explain what the law of diminishing(marginal) return means. Does it apply to the short or long run? Is it only present in perfectly competitive markets? b) how does a firm operating under perfect competition know when it is maximizing its profit-in other words, what is the rule that it follows? explain in detail c) is the decision that the firm makes in part b a short or long run decision? why? explain the difference between the short and the...
1. The marginal rate of substitution is ________________ (Select all that apply)
1. The marginal rate of substitution is ________________ (Select all that apply)a. Equal to the slope of the budget line at an optimal point if the optimal point is not at a corner.b. How much of each good a consumer can afford.c. The amount of one good an individual would be willing to trade for a different good and be just as well off.d. The slope of the indifference curve.e. Equal to the price ratio at an optimal point if...
1. In the utility function U(x,y)=x^5y^2 does Y exhibit diminishing marginal rate of substitution? Please show...
1. In the utility function U(x,y)=x^5y^2 does Y exhibit diminishing marginal rate of substitution? Please show your work. 2.What is the no-waste condition for the utility function U(x,y)=min{x/3,y/5} express your answer in terms of y as a function of x 3. What is the MRS of the utility function U(x,y)=3x+1/2y? please show your work
1.14. What are the relationships among marginal utilities, the marginal rate of substitution, and the slopes...
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.
Explain the principle of the cost of production, Diminishing Marginal Productivity , Diminishing Marginal Utility in...
Explain the principle of the cost of production, Diminishing Marginal Productivity , Diminishing Marginal Utility in microeconomics. ( minimum a paragraph for each)
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT