Which of the following statements is true?
A)Calculating the marginal rate of substitution assumes that prices remain unchanged.
B)Calculating the marginal rate of substitution assumes that money income remains unchanged.
C)Calculating the marginal rate of substitution assumes that satisfaction remains unchanged.
D)Calculating the marginal rate of substitution assumes that the quantities of both goods remain unchanged.

Question

Quizplus · Accepted Answer

The marginal rate of substitution (MRS) is the rate at which a consumer is willing to trade one good for another while maintaining the same level of utility. It assumes that satisfaction remains unchanged because the consumer is willing to trade one good for another only if the utility gained from the second good is equal to the utility lost from the first good. Prices, money income, and the quantities of both goods may change, but the tradeoff made by the consumer at the margin will still depend on the utility gained and lost from each good.

Which of the Following Statements Is True