The marginal rate of substitution
A)is the amount of good Y substituted for good X as a consumer moves along his budget line.
B)is the rate at which a person gives up the good measured on the y-axis to get an additional unit of the good measured on the x-axis while remaining on the same indifference curve.
C)increases as a consumer moves along her indifference curve and consumes more of the good measured on the x-axis.
D)is greater than the magnitude of the slope of the budget line.
E)is equal to the slope of the budget line.

Question

Quizplus · Accepted Answer

The marginal rate of substitution (MRS) is the maximum amount of one good that a consumer is willing to give up in order to obtain an additional unit of another good (while remaining at the same level of utility). In other words, it is the rate at which the consumer is willing to exchange (substitute) one good for another. Therefore, option B is the correct answer as it describes the MRS accurately. Option A describes the quantity of good that is substituted, which is not the same as the MRS. Option C is incorrect as the MRS may decrease as the consumer consumes more of a good. Option D is incorrect as the magnitude of the slope of the budget line is always equal to the relative price of the two goods, which is different from the MRS. Option E is also incorrect as the slope of the budget line represents the relative price of the two goods, not the MRS.

The Marginal Rate of Substitution