he marginal rate of substitution is the Group of answer choices rate at which the consumer...

he marginal rate of substitution is the

Group of answer choices

rate at which the consumer increases utility.

tradeoff rate between the two goods under consideration at any particular point.

total utility derived at any point.

absolute value of the indifference curve.

Solutions

Expert Solution

The marginal rate of substitution is defined as the amount of one good that is sacrificed to get more of another good. It is also the absolute slope of the MRS. Based on this lets consider the options -

rate at which the consumer increases utility. - The rate at which consumer increases utility depends on the shape of the indifference curve. For a constant slope, utility change is constant, for concave IC - utility rises at increasing rate while for convex IC - utility rises at decreasing rate. So the rate of change of utility depends on the second order of the IC's slope (which is the MRS). So this is incorrect.

tradeoff rate between the two goods under consideration at any particular point - This matches exactly with our starting definition of MRS. MRS states is the slope of the IC, which is grahically change in y good/change in x. This shows amount of y gain/loss due to x loss/gain. So its shows the trade off between the two goods. Formally its given as MRS = MUx/MUy. Correct option

total utility derived at any point - Incorrect. This is simply the total utility from consuming all goods at a point in time. This does not explain what MRS is.

absolute value of the indifference curve - Incorrect. An absolute value of the indifference curve does not make sense. It has to be absolute value of something (like utility, slope etc) of the IC to make sense. So incorrect. Note that if this option read absolute slope of IC then it would mean the MRS and then would be correct.

Rahul Sunny answered 1 year ago

Next > < Previous

Related Solutions

When the price of a product falls: Group of answer choices a.The income and substitution effects...

When the price of a product falls: Group of answer choices a.The income and substitution effects will encourage consumers to purchase more of a Giffen good. b.substitution effect will encourage consumers to purchase more of the product and the income effect will encourage them to purchase less of a normal good. c.income and substitution effects will encourage consumers to purchase less of an inferior good. d.substitution effect will encourage consumers to purchase more of the product and the income effect...

Suppose a consumer who has a marginal rate of substitution of current consumption for future consumption...

Suppose a consumer who has a marginal rate of substitution of current consumption for future consumption that is a constant, b. Determine how this consumer’s choice of current consumption, future consumption, and savings depends on the market real interest rate r, and taxes and income in the current and future periods. Show this in diagrams.

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.

Consumer problem recognition occurs when: Group of answer choices the consumer has depleted his or her...

Consumer problem recognition occurs when: Group of answer choices the consumer has depleted his or her inventory of a product the consumer is dissatisfied with his or her previous purchase the consumer’s situation has changed creating new needs the purchase of one product necessitates a new purchase of a related product any of the above situations occur

The federal funds rate is Group of answer choices both the rate of interest that commercial...

The federal funds rate is Group of answer choices both the rate of interest that commercial banks charge each other for overnight loans and is determined by the supply and demand of excess reserves in the market for federal funds the rate of interest that Fed banks charge each other for overnight loans is determined by the supply and demand of excess reserves in the market for federal funds the rate of interest that Fed banks charge commercial banks for...

assumption of diminishing marginal rate of substitution means that

1. When demand and supply are linear, consumer surplus is equal to: Group of answer choices...

1. When demand and supply are linear, consumer surplus is equal to: Group of answer choices The area between the demand curve and the price, out to the quantity that is exchanged. The area between the supply curve and the price, out to the quantity that is exchanged. The entire area between the demand curve and the price. The entire area between the supply curve and the price. 2. Which of the following is not an assumption underlying the supply...

Which of the following is not a limitation of the proprietorship: Group of answer choices unlimited...

Which of the following is not a limitation of the proprietorship: Group of answer choices unlimited personal liability limited life difficult ownership transfer difficult to obtain large sums of capital subject to few government regulations

Which of the following is NOT true? Group of answer choices Compared to this year, a...

Which of the following is NOT true? Group of answer choices Compared to this year, a discount bond’s price will increase next year, everything else equal. Compared to this year, a premium bond’s price will decrease next year, everything else equal. Compared to this year, a par bond’s price will remain constant next year, everything else equal. Compared to this year, a premium bond’s price will increase next year, everything else equal.

Which of the following is not an asset for a bank? Group of answer choices Mortgage...

Which of the following is not an asset for a bank? Group of answer choices Mortgage loans made by the bank. Excess reserves. Holding of U.S. government securities. Checking account balances held by depositors.

Subjects