If you are willing to give up 10 shirts (on the vertical axis) for 5 pairs of pants (on the horizontal axis), and your level of satisfaction is unchanged, the marginal rate of substitution is:
A)0.5.
B)2.
C)5.
D)10.

Question

Quizplus · Accepted Answer

The marginal rate of substitution (MRS) is the rate at which a consumer is willing to trade one good for another while maintaining the same level of satisfaction. In this case, the MRS is 10/5 = 2, which means that the consumer is willing to give up 2 shirts to get one more pair of pants. The best choice(s) for the consumer would be to continue trading shirts for pants as long as the MRS remains at 2. Any further trades that result in a lower MRS would reduce the consumer's level of satisfaction.

If You Are Willing to Give Up 10 Shirts (On