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 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 rate at which a consumer is willing to give up one good (measured on the y-axis) to get an additional unit of another good (measured on the x-axis) while remaining on the same indifference curve. In other words, it measures the relative importance of the two goods to the consumer. Choice A is incorrect because it describes the consumer's movement on the budget line, but it doesn't explain what the MRS is. Choice C is also incorrect because the MRS can increase or decrease depending on the consumer's preferences. Choice D is not true because the slope of the budget line tells us the ratio of the prices of the two goods, but it doesn't measure the consumer's willingness to trade one good for the other. Choice E is not true because the slope of the budget line and the MRS are not necessarily the same unless the consumer's preferences are linear (i.e., the same amount of utility is gained from each additional unit of the goods).

The Marginal Rate of Substitution