According to the law of diminishing marginal rate of substitution,
A)as consumption of good A increases, other things constant, its marginal utility declines
B)as consumption of good A increases, other things constant, one is willing to give up increasing amounts of good B to get another unit of good A
C)as consumption of good A increases, other things constant, the amount of good B one is willing to give up to get another unit of good A falls
D)the indifference curve's slope increases as more of the good on the horizontal axis is consumed
E)indifference curves intersect when marginal utilities fall

Question

Quizplus · Accepted Answer

The law of diminishing marginal rate of substitution states that as consumption of one good increases, other things constant, the amount of the other good one is willing to give up to get another unit of the first good will fall. This is reflected in the shape of the indifference curve, which is downward sloping and convex to the origin. Option A is incorrect because it describes the law of diminishing marginal utility, not the law of diminishing marginal rate of substitution. Option B is incorrect because it describes the opposite effect - as consumption of good A increases, one is willing to give up decreasing amounts of good B to get another unit of good A. Option D is incorrect because it describes the slope of the indifference curve, which is determined by the ratio of the marginal utilities of the two goods, not the quantity consumed of either good. Option E is incorrect because indifference curves do not intersect.

According to the Law of Diminishing Marginal Rate of Substitution