Suppose preferences are monotonic and strictly convex. If the MRS at the point (6,15) = -9,...

Suppose preferences are monotonic and strictly convex. If the MRS at the point (6,15) = -9, what could be a possible MRS on the same IDC at the point (11,11)? Recall that a negative slope becomes flatter when it is closer to 0.

Expert Solution

Answer: Given that the preferences are monotonic and strictly convex we know that the indifference curve for an individual will be convex to the origin. Now we know that the slope of the indifference curve is the marginal rate of substitution. When the preferences are strictly convex, the slope along the indifference curve decreases as the quantity of X increases relative to the quantity of Y.

Here according to the question the MRS at point A (6,15) is equal to -9. The negative sign here shows the diminishing marginal rate of substitution. Now when we move to point B such as (11,11) the quantity of X has increased and Y has fallen. As a result the slope of the indifference curve at point B becomes flatter. This means that the MRS at the point (11,11) will be any value less than -9. So a possible MRS at point (11,11) could be -5.

Note: Here we just look at the absolute values of the MRS. Negative sign just represents that the slope is declining along the indifference curve.

Rahul Sunny answered 1 year ago

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