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Marginal Rate of Substitution in Microeconomics

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Marginal Rate of Substitution in Microeconomics

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Questions and Answers

What happens to the budget line when there is an increase in income?

It shifts to the right (correct)

It shifts to the left

It becomes steeper

It remains the same

What is the effect of an increase in the price of one good on the budget line?

It shifts the budget line to the left

It swivels the budget line (correct)

It remains the same

It shifts the budget line to the right

What is the point of contact between the consumer's budget line and the highest indifference curve?

Budget equilibrium

Consumer equilibrium (correct)

Market equilibrium

Price equilibrium

What happens to the quantity demanded of each good when there is an increase in income?

It increases Signup and view all the answers

What is the effect of a decrease in the price of one good on the budget line?

It shifts the budget line to the right Signup and view all the answers

What is the slope of the budget line indicative of?

The relative prices of the goods Signup and view all the answers

What happens to the purchasing power when the price of one good increases?

It decreases Signup and view all the answers

What is the name of the curve that represents different combinations of two goods that provide the same level of satisfaction?

Indifference curve Signup and view all the answers

What is the name of the rate at which the consumer is willing to trade one good for another?

Marginal rate of substitution Signup and view all the answers

What is the law that states that the marginal rate of substitution will decrease as the quantity of one good increases?

Law of diminishing marginal substitution Signup and view all the answers