The assumption of diminishing marginal rate of substitution means that
A) the budget line has a negative slope.
B) the budget line does not shift when people's preferences change.
C) indifference curves might have a positive slope.
D) indifference curves will be concave.

Question

Quizplus · Accepted Answer

The assumption of diminishing marginal rate of substitution implies that as a consumer substitutes more and more of one good for another, the marginal utility (or satisfaction) gained from each additional unit of the substituted good decreases. This leads to a concave shape for the indifference curves, which represent all combinations of goods that give the same level of satisfaction to the consumer. Therefore, the correct choice is D, indifference curves will be concave. The other options are not necessarily true or related to the assumption of diminishing marginal rate of substitution.

The Assumption of Diminishing Marginal Rate of Substitution Means That