The marginal rate of substitution
A) can be computed by measuring the slope of the indifference curve.
B) can be computed by measuring the curvature of the indifference curve.
C) cannot be deduced from the properties of the indifference curve.
D) can only be computed if we know the prices of all goods.
E) can be deduced from the budget line.

Question

Quizplus · Accepted Answer

The marginal rate of substitution (MRS) is the rate at which a consumer is willing to exchange one good for another while remaining indifferent or holding utility constant. It is calculated by measuring the slope of the indifference curve, as the slope represents the amount of one good a consumer is willing to give up for an additional unit of the other good. Therefore, choice A is correct. Choice B is incorrect as curvature is not directly related to MRS. Choice C is incorrect as MRS can be derived from the indifference curve. Choice D is incorrect as the knowledge of the prices of all goods is not required to calculate MRS. Choice E is incorrect as the budget line only represents the limit of affordable combinations of goods and does not provide information about the MRS.

The Marginal Rate of Substitution