Marginal rate of substitution
Rate of increasing opportunity cost
Marginal rate of utility of income
Rate of relative price
Answer is Right!
Answer is Wrong!
The correct answer is A. Marginal rate of substitution.
The marginal rate of substitution (MRS) is the rate at which a consumer is willing to give up one good in exchange for another. It is measured as the ratio of the marginal utility of the two goods. The MRS is negative and diminishing, which means that a consumer is willing to give up less of a good as they have more of it.
The slope of an indifference curve is equal to the MRS. This is because the slope of an indifference curve measures the rate at which a consumer is willing to substitute one good for another while remaining at the same level of utility.
The other options are incorrect.
- Option B, the rate of increasing opportunity cost, is the rate at which the opportunity cost of producing one good increases as more of that good is produced.
- Option C, the marginal rate of utility of income, is the rate at which a consumer’s utility changes as their income changes.
- Option D, the rate of relative price, is the ratio of the prices of two goods.