Cher's marginal rate of substitution of necklaces (N) for earrings (E) is 5 (MRS_EN = 5). This information implies that: A) Cher is willing to trade away five necklaces for one more pair of earrings, holding her utility constant. B) Cher will move to a higher indifference curve if she trades away five necklaces for one more pair of earrings. C) Cher should own five times as many necklaces as pairs of earrings. D) the slope of the indifference curve is 5 and thus upward sloping.

Question

Quizplus · Accepted Answer

The marginal rate of substitution measures the rate at which a consumer is willing to trade off one good for another while keeping their utility constant. In this case, Cher's MRS_EN = 5 means that she is willing to give up 5 necklaces for one more pair of earrings, while still maintaining the same level of utility. Therefore, option A is correct. The other options are not necessarily true based on the given information.

Cher's Marginal Rate of Substitution of Necklaces (N) for Earrings