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alexandra ballesteros
on Nov 25, 2024

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The marginal rate of substitution

A) may increase or decrease on a given indifference curve, depending on whether the substitution or the income effect is dominant.
B) increases as one moves southeast along an indifference curve.
C) is constant at all points on the budget line.
D) declines as one moves southeast along an indifference curve.

Marginal Rate

The rate at which a quantity increases or decreases as a result of a unit change in another variable, often used in the context of taxation or utility.

Substitution Effect

The change in consumption patterns due to a change in the relative prices of goods, leading consumers to replace more expensive items with cheaper alternatives.

Income Effect

The change in an individual's consumption patterns due to a change in their real income, typically following a price change of goods.

  • Describe the relationship between the marginal rate of substitution and movements along an indifference curve.
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billy brownNov 26, 2024
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