Question

What is the marginal rate of substitution of indifference curve?

• A. Increasing
• B. Decreasing
• C. Constant
• D. None of these

Hint:

The marginal rate of substitution decreases as more of one good is substituted for another along an indifference curve.

Answer 1

The Correct Option is B

Step 1: Understanding the Marginal Rate of Substitution (MRS).
The marginal rate of substitution refers to the rate at which a consumer is willing to trade one good for another while maintaining the same level of satisfaction or utility. The MRS typically decreases as more of one good is substituted for the other, which leads to a convex indifference curve.

Step 2: The properties of the indifference curve.
An indifference curve represents all combinations of two goods that provide the consumer with the same level of satisfaction. Typically, as a consumer substitutes one good for another, the rate at which they are willing to trade decreases. This results in the indifference curve being downward sloping and convex to the origin. Hence, the marginal rate of substitution is decreasing.

Step 3: Analysis of options.
(A) Increasing: If the marginal rate of substitution were increasing, the indifference curve would be concave to the origin, which is not typical for most real-world cases.
(B) Decreasing: Correct. The marginal rate of substitution typically decreases as more of one good is substituted for another, which matches the typical behavior of indifference curves.
(C) Constant: A constant MRS would imply a linear indifference curve, which is less common for most preferences, as diminishing marginal utility is generally observed.
(D) None of these: This option is incorrect because the MRS is generally decreasing.

Step 4: Conclusion.
The marginal rate of substitution is typically decreasing along the indifference curve, reflecting the principle of diminishing marginal utility. Thus, the correct answer is (B) Decreasing.