Along a given indifference curve, a consumer reduces the quantity of one good in favor of more units of the other. In this situation
A) the marginal rate of substitution falls.
B) the marginal utility of the first rises and the marginal utility of the second good falls.
C) Total utility rises.
D) Both A and B are correct.

Question

Quizplus · Accepted Answer

As the consumer reduces the quantity of one good in favor of more units of the other, the marginal rate of substitution falls, indicating that the consumer is willing to give up fewer units of the first good to acquire additional units of the second. This implies that the marginal utility of the first good rises and the marginal utility of the second good falls. As a result of the gain in marginal utility of the first good, combined with the decrease in marginal utility of the second good, total utility may rise. Therefore, both A and B are correct.

Along a Given Indifference Curve, a Consumer Reduces the Quantity