Using a carefully-labeled graph, explain the concept of declining marginal rate of substitution. Why would we expect indifference curves to exhibit this characteristic?
What will be an ideal response?
When a consumer has a relatively small amount of good X, they are willing to sacrifice a relatively large amount of good Y to get an addition amount of good X. In the diagram above, if the consumer has 1 unit of X, they will sacrifice 3 units of Y in order to get an additional unit of X. When the consumer has a relatively large amount of good X, they are willing to give up a relatively small amount of good Y in order to get an additional amount of good Y. In the diagram above, if the consumer has 9 units of X, they will sacrifice just 1 unit of Y in order to get an additional unit of X.
You might also like to view...
Suppose per capita real GDP grows by 7% per year. Based on the Rule of 70, approximately how many years will it take for the level of per capita real GDP to double?
A) 7 years B) 10 years C) 4.9 years D) none of the above
Economists Gary Becker and Kevin Murphy are associated with which of the following?
A) They discovered that price changes have both income and substitution effects. B) They have argued that social factors are not important in explaining the choices consumers make. C) Consumers appear to receive utility from consuming goods they believe are popular. D) They discovered the first example of a Giffen good.
Economists speaking like scientists make
a. normative statements. b. prescriptive statements. c. claims about how the world is. d. claims about how the world should be.
Sonja paid $15,000 in taxes after having earned $100,000 . Amanda paid $22,000 in taxes after having earned an income of $146,667.This is an example of a proportional tax
a. True b. False Indicate whether the statement is true or false