Chapter EMD, Problem 4MCQ

To determine

To state: MRS, when the quantity of good x is measured on the x-axis and the quantity of good y is measured on the y-axis.

Answer to Problem 4MCQ

The correct option is B i.e. $\frac{{\text{MU}}_{\text{x}}}{{\text{MU}}_{\text{y}}}$

Explanation of Solution

MRS, would be equal $\frac{{\text{MU}}_{\text{x}}}{{\text{MU}}_{\text{y}}}$ , when the quantity of good x is measured on the x-axis and the quantity of good y is measured on the y-axis.

Marginal rate of substitution is defined as the amount of a good that a consumer is prepared to consume compared to other goods, till the time the new good is equally satiating. MRS is used in indifference theory to examine consumer behavior.

MRS, of good A in place of good B is equal to $\frac{{\text{MU}}_{\text{a}}}{{\text{MU}}_{\text{b}}}$ , i.e., the ratio of the marginal utility of A to the marginal utility of B.

MRS= Marginal rate of substitution

  ${\text{MU}}_{\text{x}}$ = Marginal utility of Good x

  ${\text{MU}}_{\text{y}}$ = Marginal utility of Good y

Economics Concept Introduction

Introduction:

Marginal rate of substitution is defined as the amount of a good that a consumer is prepared to consume compared to other goods, till the time the new good is equally satiating. MRS is used in indifference theory to examine consumer behavior.

MRS, of good A in place of good B is equal to $\frac{{\text{MU}}_{\text{a}}}{{\text{MU}}_{\text{b}}}$ , i.e. the ratio of the marginal utility of A to the marginal utility of B.