A consumer is indifferent between the following combinations of goods X and Y — that is, all of them lie on the same indifference curve. Compute the Marginal Rate of Substitution () between each successive pair of combinations, and state whether the Law of Diminishing MRS holds.
| Combination | Units of X | Units of Y |
|---|---|---|
| A | 1 | 12 |
| B | 2 | 8 |
| C | 3 | 5 |
| D | 4 | 3 |
| E | 5 | 2 |
You're viewing a preview — the full solution, concept, methods & PYQ mapping are locked.
Start your 14-day free trial to unlock the full solution →The Marginal Rate of Substitution between two adjacent combinations on the same indifference curve is the amount of Y given up divided by the amount of X gained, taken as a positive value: .
| Move | ΔX | ΔY | MRSxy = −ΔY/ΔX |
|---|---|---|---|
| A → B | +1 | −4 | 4 |
| B → C | +1 | −3 | 3 |
| C → D | +1 | −2 | 2 |
| D → E | +1 | −1 | 1 |
The MRS falls steadily — 4, then 3, then 2, then 1 — as the consumer moves down the indifference curve acquiring more X. This is exactly what the Law of Diminishing Marginal Rate of Substitution predicts: as the consumer already holds more units of X, each additional unit of X becomes relatively less valuable to him compared with the Y he still holds, so he is willing to sacrifice progressively SMALLER amounts of Y to obtain one more unit of X. This is …
Unlock everything free for 14 days
- Full step-by-step solutions
- Concept-first explanations
- Methods, shortcuts & mistakes
- PYQ mapping + timed mock tests
Full access for 14 days. No credit card required.