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| 1. |
Define Marginal Rate of Substitution. Explain why is an indifference curve convex ? |
| Answer» <html><body><p></p>Solution :The <a href="https://interviewquestions.tuteehub.com/tag/mrs-549296" style="font-weight:bold;" target="_blank" title="Click to know more about MRS">MRS</a> of X for Y represents the amount of Y which the consumer has to give up for the gain of one additional <a href="https://interviewquestions.tuteehub.com/tag/unit-1438166" style="font-weight:bold;" target="_blank" title="Click to know more about UNIT">UNIT</a> of X so that his or her level of his or her <a href="https://interviewquestions.tuteehub.com/tag/utility-1441817" style="font-weight:bold;" target="_blank" title="Click to know more about UTILITY">UTILITY</a> (satisfaction) <a href="https://interviewquestions.tuteehub.com/tag/remains-621920" style="font-weight:bold;" target="_blank" title="Click to know more about REMAINS">REMAINS</a> the same. ... For example, if the consumer goes from D to E, then the marginal <a href="https://interviewquestions.tuteehub.com/tag/rate-1177476" style="font-weight:bold;" target="_blank" title="Click to know more about RATE">RATE</a> of substitution becomes 1.Indifference curves are convex to the origin because as the consumer begins to increase his or her use of one good over another, the curve represents the marginal rate of substitution.</body></html> | |