The "marginal rate of substitution" between two goods is measured by:
A)the ratio of the market prices of the two goods.
B)the number of units of a good consumed divided by the market price of the other good.
C)the number of units of one good a consumer would give up to consume one more unit of another good, while holding total utility constant.
D)the consumer's budget constraint divided by the price of each good.

Question

Quizplus · Accepted Answer

The definition of marginal rate of substitution (MRS) is the amount of one good that a consumer is willing to give up (i.e. the marginal cost) in order to obtain an additional unit of another good, while keeping total utility constant. Therefore, the correct answer is C, which describes the trade-off between the two goods that a consumer is willing to make. A) and D) do not accurately describe MRS, and B) refers to the concept of the marginal utility per dollar spent, which is related to but not the same as MRS.

The "Marginal Rate of Substitution" Between Two Goods Is Measured