Question

Explain the law of diminishing marginal rate of substitution in indifference curves, with the help of diagram.

Hint:

The diminishing MRS explains why consumers value goods less as they accumulate more of them.

Answer 1

Step 1: Define the law of diminishing marginal rate of substitution (MRS).
The law of diminishing marginal rate of substitution states that as a consumer moves along an indifference curve and substitutes one good for another, the marginal rate of substitution (MRS) between the two goods diminishes. In simple terms, as the consumer consumes more of one good and less of another, they are willing to give up less and less of the second good to get more of the first good.
Step 2: Explanation of MRS.
The marginal rate of substitution is the slope of the indifference curve, which shows the amount of one good that a consumer is willing to give up for an additional unit of another good, while maintaining the same level of satisfaction.
Step 3: Diagram and diminishing MRS.
In the diagram of an indifference curve, as we move down along the curve from left to right, the consumer substitutes more of good X for good Y. The rate at which good Y is given up decreases as more of good X is consumed, hence the slope of the curve flattens.
Step 4: Conclusion.
Thus, the law of diminishing marginal rate of substitution implies that as a consumer substitutes goods, the amount of one good that they are willing to give up for an additional unit of the other good decreases. Final Answer: \[ \boxed{\text{As a consumer substitutes goods, the marginal rate of substitution diminishes.}} \]