In the graph, the MRS falls from 5 (A to B) to 2 (B to C) and then to 0.6 (C to D). This shows that An indifference curve through bundles A (2, 15), B (3, 10), C (5, 6) and D (10, 3), where the first number is good 1 and the second is good 2.

In the graph, the MRS falls from 5 (A to…

In the graph, the MRS falls from 5 (A to B) to 2 (B to C) and then to 0.6 (C to D).

Question 40

MediumOriginal question

In the graph, the MRS falls from 5 (A to B) to 2 (B to C) and then to 0.6 (C to D). This shows that

An indifference curve through bundles A (2, 15), B (3, 10), C (5, 6) and D (10, 3), where the first number is good 1 and the second is good 2.

the price of good 1 is fallingCorrect answerYour answerthe consumer values each extra unit of good 1 less as he has more of itCorrect answerYour answerthe consumer's income is risingCorrect answerYour answergood 2 is becoming cheaperCorrect answerYour answer

Show the answer and explanation

CorrectNot quiteAnswer B

Correct answer: B

Moving down the curve the consumer has more good 1 and less good 2, so he will part with less good 2 for each further unit of good 1.
C to D: good 2 falls by 3 while good 1 rises by 5, so MRS = 3 ÷ 5 = 0.6.

Concept: Why the MRS diminishes
Typical timeTypical: 70 s
Your timeYours: —

The rule this testsIndifference curves and MRS

Practise this chapter →

Ten questions from Budget Line & Optimal Choice, at your own pace.

Practise this chapter →

Ten questions from Budget Line & Optimal Choice, at your own pace.

In the graph, the MRS falls from 5 (A to B) to 2 (B to C) and then to 0.6 (C to D).

Question 40

Explanation