The rate at which Sam is willing to give up a gallon of gasoline to get one more pound of coffee, and remain on the same indifference curve is called his
A) opportunity cost of coffee.
B) opportunity cost of gasoline.
C) personal price of coffee.
D) marginal rate of substitution.

Question

Quizplus · Accepted Answer

The scenario described pertains to the concept of marginal rate of substitution (MRS) which refers to the rate at which a consumer is willing to trade one good for another while remaining at the same level of satisfaction (indifference curve). Therefore, the correct answer is D. Option A refers to the opportunity cost of coffee, which is the value of the next best alternative foregone while choosing coffee. Option B is incorrect as it refers to the opportunity cost of gasoline, which is the value of the next best alternative foregone when using gasoline. Option C is incorrect as it states personal price of coffee, which is not a commonly used term in economics.

The Rate at Which Sam Is Willing to Give Up