The marginal rate of substitution between first-period consumption and second-period consumption:
A) is the inverse of the slope of an indifference curve, in which first-period consumption is graphed along the horizontal axis.
B) is generally high when first-period consumption is high.
C) indicates by how much first-period consumption changes for a one-unit change in first-period income.
D) reveals the rate at which the consumer is willing to substitute second-period consumption for first-period consumption.

Question

Quizplus · Accepted Answer

The marginal rate of substitution between first-period consumption and second-period consumption reveals the rate at which the consumer is willing to substitute second-period consumption for first-period consumption, making option D the correct choice. Option A is incorrect because the inverse of the slope of an indifference curve, in which first-period consumption is graphed along the horizontal axis, gives the marginal rate of substitution between second-period consumption and first-period consumption. Option B is incorrect because the marginal rate of substitution is not necessarily high when first-period consumption is high. Option C is incorrect because the marginal rate of substitution does not indicate by how much first-period consumption changes for a one-unit change in first-period income.

The Marginal Rate of Substitution Between First-Period Consumption and Second-Period