Question

The formula MRSxy, representing the Marginal Rate of Substitution, denotes:

a) The slope of the indifference curve, negative always
b) The rate of change in marginal utility
c) The slope of the budget constraint
d) The ratio of marginal cost to marginal benefit

Answer 1

The Marginal Rate of Substitution (MRS) measures how much of one good a consumer is willing to give up to obtain more of another good, while maintaining the same level of satisfaction or utility. Option b.

Step-by-step explanation:

The formula MRSxy, representing the Marginal Rate of Substitution, denotes the rate at which a consumer is willing to trade one good for another, while maintaining the same level of satisfaction or utility. It measures how much of one good a consumer is willing to give up to obtain more of another good.

For example, if the MRSxy is 2, it means that the consumer is willing to give up 2 units of good x to obtain 1 more unit of good y, while still remaining equally satisfied.

The Marginal Rate of Substitution is closely related to the slope of an indifference curve. Indifference curves show all the combinations of two goods that give the consumer the same level of satisfaction. The slope of an indifference curve is the Marginal Rate of Substitution.

So Option b.