The marginal rate of substitution is
A) equal to unit changes in the quantities of both goods so that utility rises.
B) the slope of the budget line at all points.
C) the change in the quantity of one good that just offsets a unit change in another good, keeping utility constant.
D) found by adding additional units.

Question

Quizplus · Accepted Answer

The marginal rate of substitution (MRS) is the rate at which a consumer is willing to trade one good for another while maintaining the same level of utility. It is calculated as the ratio of the marginal utility of one good to the marginal utility of another good. Thus, the change in the quantity of one good that just offsets a unit change in another good, keeping utility constant is the correct statement for MRS. Choice A is incorrect because it talks about the unit change in both goods leading to an increase in utility, but MRS talks about keeping utility constant. Choice B is incorrect because the slope of the budget line is not always the MRS as it depends on the prices of both goods. Choice D is incorrect because MRS does not involve adding additional units of either good.

The Marginal Rate of Substitution Is