[amp_mcq option1=”The principle of diminishing marginal rate of relative price” option2=”The diminishing marginal rate of substitution” option3=”The marginal rate of substitution is constant along an indifference curve” option4=”The indifference curves farther away from the origin represent higher levels of utility” correct=”option2″]<\/p>\n
The correct answer is: B. The diminishing marginal rate of substitution.<\/p>\n
The marginal rate of substitution (MRS) is the amount of one good that a consumer is willing to give up to obtain one more unit of another good, while maintaining the same level of utility. The MRS is always diminishing, which means that consumers are willing to give up less of one good to obtain one more unit of another good as they have more of both goods.<\/p>\n
This is because consumers have diminishing marginal utility from goods. As a consumer consumes more of a good, the marginal utility they receive from each additional unit of the good decreases. This means that they are willing to give up less of another good to obtain one more unit of the good that they have more of.<\/p>\n
The diminishing marginal rate of substitution is what causes indifference curves to be bowed towards the origin. Indifference curves represent all combinations of goods that provide the same level of utility to a consumer. The fact that the MRS is diminishing means that the consumer is willing to give up less of one good to obtain one more unit of another good as they have more of both goods. This is why indifference curves are bowed towards the origin.<\/p>\n
Option A is incorrect because the principle of diminishing marginal rate of relative price is a different concept. The principle of diminishing marginal rate of relative price states that as a consumer consumes more of one good, the marginal rate of substitution between that good and another good decreases. This is because the consumer has diminishing marginal utility from the good that they are consuming more of.<\/p>\n
Option C is incorrect because the marginal rate of substitution is not constant along an indifference curve. The marginal rate of substitution is diminishing along an indifference curve.<\/p>\n
Option D is incorrect because the indifference curves farther away from the origin do not necessarily represent higher levels of utility. The indifference curves farther away from the origin represent combinations of goods that provide the same level of utility to the consumer. However, the level of utility that a consumer receives from a combination of goods can vary depending on the consumer’s preferences.<\/p>\n","protected":false},"excerpt":{"rendered":"
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