BUSINESS ADMINISTRATION
BUSINESS ECONOMICS
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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1.perfect substitutes
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2.perfect complements
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3.perfect elastic
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4.none of the above
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Detailed explanation-1: -If the marginal rate of substitution between two goods is zero, these goods are perfect substitutes.
Detailed explanation-2: -If two goods X and Y are perfect substitutes, the indifference curve is a straight line with negative slope, as shown in Figure 41 because the MRSXY is constant.
Detailed explanation-3: -Therefore, the marginal rate of substitution is zero because the two goods X and Y are consumed in the fixed ratio1:1 which is indicated by the slope of the ray OS at point B.
Detailed explanation-4: -For example, if two commodities are perfect substitutes, the MRS is-1 throughout. In case of neutral goods, the MRS is infinite throughout. If two goods are perfect complements, the MRS is either zero or infinite and nothing in between.