If an indifference curve is bowed out away from the origin, the marginal rate of substitution is
A)not likely to reflect the relative value of goods.
B)likely to be constant for all bundles along the indifference curve.
C)likely to be identical to the price ratio for each bundle along the indifference curve.
D)different for each bundle along the indifference curve.

Question

Quizplus · Accepted Answer

When the indifference curve is bowed out (convex), it means that the marginal rate of substitution (MRS) decreases as we move down the curve. This is because as we consume more of one good, the marginal utility (additional satisfaction) of consuming an additional unit of that good decreases, making us willing to give up fewer units of the other good to obtain it. Therefore, the MRS is different for each bundle along the indifference curve, and it reflects the relative value of the goods at that point. The MRS is not likely to be constant for all bundles along the indifference curve and is also not likely to be identical to the price ratio for each bundle along the indifference curve.

If an Indifference Curve Is Bowed Out Away from the Origin