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What is the reason for diminishing marginal rate of substitution?
Most indifference curves are usually convex because as you consume more of one good you will consume less of the other. So, MRS will decrease as one moves down the indifference curve. This is known as the law of diminishing marginal rate of substitution.
What does marginal rate of substitution indicates?
In economics, the marginal rate of substitution (MRS) 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. At equilibrium consumption levels (assuming no externalities), marginal rates of substitution are identical.
Why should Mrs decline Class 11?
Well MRS decline continuously in IC curve because of law of diminishing marginal utility. 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. Thats why MRS decline in IC curve.
Why should marginal rate of substitution diminish for a stable consumer’s equilibrium?
Textbook solution. Marginal rate of Substitution (MRS) is the rate at which the consumer will be willing to sacrifice one good for the other good. So, MRS should be diminishing as additional consumption of A results in a fall in marginal utility due to that the consumer will not be willing to increase its consumption.
What is the impact of diminishing marginal rate of substitution on the slope of indifference curve?
What is the impact of diminishing marginal rate of substitution on the slope of indifference curve? Indifference curve become convex towards the origin.
What do you mean by diminishing rate of substitution?
The Diminishing Marginal Rate of substitution refers to the consumer’s willingness to part with less and less quantity of one good in order to get one more additional unit of another good.
What does marginal rate of substitution class 11 mean?
The Marginal Rate of Substitution can be defined as the rate at which a consumer is willing to forgo a number of units good X for one more of good Y at the same utility.
What happens to the marginal rate of substitution as you move down along a convex indifference curve?
What happens to the marginal rate of substitution as you move down along a convex indifference curve? Along a convex indifference curve, the marginal rate of substitution decreases.