Question

17. Which statement is true?

a. Diminishing marginal utility is equivalent to diminishing MRS2 1 → (where MRS2 1 → is defined as the marginal rate of substitution of good 2 for good 1, in the usual manner).

b. A consumer has diminishing MRS2 1 → if goods 1 and 2 are perfect substitutes.

c. If two goods are perfect complements, a consumer will have diminishing MRS2 1 → .

d. If a consumer has monotonic and strictly convex preference, the MRS2 1 → is increasing (becoming less negative) with consumption of good 1.

e. None of the above statements are true.

Answer 1

Question :

Solution :

the statement of option ( d ) would be correct here .i.e.,

If a consumer has monotonic and strictly convex preference , the MRS 21 --is increasing ( becoming less negative ) with consumption of good 1 .

As monotonic preference means a consumer prefer always more quantities to less . It means he prefer either more of both goods or more of at least one good . Also strictly convex preference means when a consumer reveal his strong preference for a particular good i.e., Good X  $>$ good Y ( x good is strictly prefer to good y )