Which of the following statements about the law of diminishing marginal rate of substitution is NOT correct?
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → It makes the indifference curve a straight line.
The law of diminishing MRS says the consumer gives up fewer and fewer mangoes for each extra banana. This bends the indifference curve into a shape convex to the origin.
Option (1) It makes the indifference curve a straight line. — False. A straight-line indifference curve comes when the MRS does not diminish, as with perfect substitutes.
Option (2) The consumer gives up smaller and smaller amounts of mangoes for each extra banana. — True. This is what the law describes.
Option (3) The MRS falls as the consumer has more bananas along an indifference curve. — True. The MRS falls as bananas increase.
Option (4) It makes the indifference curve convex to the origin. — True. A falling MRS makes the curve flatter as we move right.
NCERT (2026-27): “2.1.2 Ordinal Utility Analysis … So, with increase in the number of bananas, the consumer will feel the inclination to sacrifice small and smaller amounts of mangoes. This tendency for the MRS to fall with increase in quantity of bananas is known as Law of Diminishing Marginal Rate of Substitution. …” “Shape of an Indifference Curve It may be mentioned that the law of Diminishing Marginal Rate of Substitution causes an indifference curve to be convex to the origin. This is the most common shape of an indifference curve. But in case of goods being perfect substitutes4, the marginal rate of substitution does not diminish. It remains the same. …” “… For the consumer, it hardly matters whether she gets a five rupee coin or a five rupee note. So, irrespective of how many five rupee notes she has, the consumer will sacrifice only one five rupee coin for a five rupee note. So these two commodities are perfect substitutes for the consumer and indifference curve depicting these will be a straight line. …” |