What is the marginal rate of substitution for complementary goods?
In economics the marginal rate of substitution beween two complementary goods is the rate at which a consumer can give up some amount of one good in exchange for another good while maintaining the same level of utility.
What is the indifference curve for complementary goods?
The indifference curve of a perfect complement exhibits a right angle, as illustrated by the figure. Such preferences can be represented by a Leontief utility function. Few goods behave as perfect complements.
What is the relationship between two goods if the marginal rate of substitution between them is zero or?
Goods that have its marginal rate of substitution between them being zero are termed complementary goods.
Why does the marginal rate of substitution diminish?
An important principle of economic theory is that marginal rate of substitution of X for Y diminishes as more and more of good X is substituted for good Y. In other words, as the consumer has more and more of good X, he is prepared to forego less and less of good Y.
Why are complementary goods L shaped?
This is a graph that shows different combination of two goods which along the curve yield the same level of utility to the consumer.At any point in the along the curve, the consumer is indifferent between the two goods, where increase in consumption of one good will lead to a decrease in consumption of the other good.
Why is the indifference curve of complementary goods L shaped?
The defining criterion for perfect substitutes is that marginal rate of substitution (MRS) is constant. The example of complementary goods we saw before was right and left shoes. One has no use for one without the other. This fact causes the indifference curves to become L-shaped (see Figure 3.5).
What is the relationship between two goods 1 and 2 if the MRS between them is zero or is infinity explain?
The MRS will be zero or equal to infinity in those cases when one of the goods is a good, and the other is a neutral good, the marginal utility of consumption of which for the consumer is equal to zero.
Why does MRS diminish as one good is substituted for the other?
MRS decline continuously in IC curve because of law of diminishing marginal utility. It means when the consumer consumes more and more of good 1 then his marginal utility from another good keeps on declining and he is willing to give up less and less of good 2 for each good 1.