Suppose the marginal rate of substitution of x for y is constant for all levels of x and y. Goods x and y are:
A)perfect substitutes.
B)perfect complements.
C)normal goods.
D)inferior goods.

Question

Quizplus · Accepted Answer

If the marginal rate of substitution for x and y is constant, it means that the consumer is willing to substitute x for y at a constant rate. This only occurs in the case of perfect substitutes, where the consumer is indifferent between any combination of x and y as long as the marginal rate of substitution remains constant. The constant marginal rate of substitution implies that the consumer is willing to substitute x for y at a fixed rate no matter how much of x or y they already have. This is the defining characteristic of perfect substitutes.

Suppose the Marginal Rate of Substitution of X for Y