The marginal rate of substitution
A) is equal to the price ratio on the budget line.
B) always has a positive algebraic value.
C) is constant as one moves along a particular indifference curve.
D) is the amount of one good the consumer is willing to give up in exchange for another so as to keep total expenditure unchanged.
E) is the amount of one good the consumer is willing to give up in exchange for another so as to keep total satisfaction unchanged.

Question

Quizplus · Accepted Answer

The marginal rate of substitution (MRS) measures the rate at which a consumer is willing to trade one good for another while keeping the same level of utility/satisfaction. Therefore, the correct choice is E, which states that the MRS is the amount of one good the consumer is willing to give up in exchange for another so as to keep total satisfaction unchanged. Choices A, B, and C are incorrect because they do not capture the essence of the MRS. The price ratio on the budget line may affect the consumer's purchasing decision, but it does not necessarily equal the MRS. The MRS can be negative if the consumer is willing to give up more of one good to get a certain amount of another. Finally, the MRS may change as the consumer moves along an indifference curve, depending on the shape of the utility function.

The Marginal Rate of Substitution