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 two goods are perfect substitutes, their indifference curve is a straight line which is downward sloping. Since a straight line has a constant slope, and the marginal rate of substitution (MRS) is the slope of the indifference curve, then a constant MRS means that the two goods are perfect substitutes.
Detailed explanation-2: -Constant MRS occurs when there is a perfect substitute for both goods X and Y. On the indifference curve, the MRS is equal to one because the lines are parallel. This means that the slopes form a 45° angle with each axis.
Detailed explanation-3: -In economics, the marginal rate of substitution (MRS) is the amount of a good that a consumer is willing to consume compared to another good, as long as the new good is equally satisfying.
Detailed explanation-4: -Constant. The marginal rate of substitution is constant also. One can obtain this if, for one more unit of Y, only one unit of X is given up. It is constant for perfect substitution.
Detailed explanation-5: -When two goods are perfect substitutes of each other, their indifference curves are straight lines and the marginal rate of substitution is constant.