The rate at which a person 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 or her
A) relative cost of coffee in terms of gasoline.
B) indifference cost of coffee.
C) personal price of coffee.
D) marginal rate of substitution.

Question

Quizplus · Accepted Answer

The situation described in the question is an example of the marginal rate of substitution (MRS), which is the rate at which a person is willing to trade one good for another while remaining on the same indifference curve. The MRS represents the relative value that the person places on the two goods and is a key concept in determining consumer behavior and preferences. Option A refers to the relative cost of coffee in terms of gasoline, which is not directly related to the MRS. Option B, the indifference cost of coffee, is not a commonly used term in economics. Option C, personal price of coffee, does not accurately capture the concept of the MRS.

The Rate at Which a Person Is Willing to Give