Which of the following statements about the marginal rate of substitution (MRS) are correct?
(A) The MRS is the number of bananas given up for one more mango.
(B) The MRS is the rate at which the consumer is able to substitute one good for the other in the market.
(C) For perfect substitutes, the MRS stays constant.
(D) MRS equals the absolute value of ΔY/ΔX along an indifference curve.
(E) If ΔY/ΔX = –3/1, the MRS is 3.
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → (C), (D) and (E) only
The MRS is the number of mangoes (Y) a consumer is willing to give up for one more banana (X), keeping her satisfaction the same.
(A) The MRS is the number of bananas given up for one more mango. — Incorrect. It is the number of mangoes given up for one more banana.
(B) The MRS is the rate at which the consumer is able to substitute one good for the other in the market. — Incorrect. That rate is the slope of the budget line. The MRS is the rate she is willing to substitute.
(C) For perfect substitutes, the MRS stays constant. — Correct. She gives up one five-rupee coin for each five-rupee note, however many she has.
(D) MRS equals the absolute value of ΔY/ΔX along an indifference curve. — Correct. ΔY/ΔX is negative, so its size is taken.
(E) If ΔY/ΔX = –3/1, the MRS is 3. — Correct. 3 mangoes are given up for 1 banana.
NCERT (2026-27): “2.1.2 Ordinal Utility Analysis … The amount of mangoes that the consumer has to forego, in order to get an additional banana, her total utility level being the same, is called marginal rate of substitution (MRS). In other words, MRS is simply the rate at which the consumer will substitute bananas for mangoes, so that her total utility remains constant. So, MRS = |∆Y/∆X| …” “MRS = |∆Y/∆X| means that MRS equals only the magnitude of the expression ∆Y/∆X. If ∆Y/∆X = –3/1 it means MRS=3.” “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. …” “Equality of the Marginal Rate of Substitution and the Ratio of the Prices … Recall from our earlier discussion that the slope of the indifference curve is the rate at which the consumer is willing to substitute one good for the other. The slope of the budget line is the rate at which the consumer is able to substitute one good for the other in the market. …” |