If the price of a good Y falls, then the marginal rate of substitution between X and Y
A)increases.
B)decreases.
C)remains the same.
D)depends on whether X and Y are normal or inferior goods, and cannot tell without that information.

Question

Quizplus · Accepted Answer

If the price of good Y falls, it becomes relatively cheaper compared to good X. This leads consumers to substitute good X for good Y, which means they are willing to give up less of good X for a unit of good Y. Hence, the marginal rate of substitution between X and Y increases.

If the Price of a Good Y Falls, Then the Marginal