The correct answer is option 2: Law of diminishing marginal rate of substitution
Explanation:
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Law of diminishing marginal utility: This law states that as a person consumes more of a good, the additional satisfaction (utility) gained from consuming an additional unit of that good tends to decrease. This law focuses on the consumption of a single good, not the substitution between goods.
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Law of diminishing marginal rate of substitution (MRS): This law indicates that as a consumer substitutes one good for another, the rate at which they are willing to give up one good in exchange for the other (while maintaining the same level of satisfaction) tends to decrease. In other words, as the quantity of one commodity increases, the MRS (the amount of one good a consumer is willing to give up for an additional unit of another good) tends to fall.
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Law of variable proportion: This law, also known as the law of returns to a variable factor, deals with production and how output changes with varying levels of one input while keeping other inputs constant.
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Law of supply: This law states that, all else being equal, an increase in the price of a good leads to an increase in the quantity supplied of that good.
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