Question : Assertion: The concept of the marginal rate of substitution (MRS) measures the rate at which a consumer is willing to trade one good for another while maintaining the same level of satisfaction.
Reason: The MRS is determined by the consumer's preferences and the relative marginal utilities of the two goods.
Option 1: Both the assertion and reason are true, and the reason is a correct explanation of the assertion.
Option 2: Both the assertion and reason are true, but the reason is not a correct explanation of the assertion.
Option 3: The assertion is true, but the reason is false.
Option 4: The assertion is false, but the reason is true.
Correct Answer: Both the assertion and reason are true, and the reason is a correct explanation of the assertion.
Solution : The correct option is (a) Option A Both the assertion and reason are true, and the reason is a correct explanation of the assertion.
The concept of the marginal rate of substitution (MRS) measures the rate at which a consumer is willing to trade one good for another while maintaining the same level of satisfaction. It represents the amount of one good that a consumer is willing to give up in exchange for an additional unit of another good, while keeping the overall utility or satisfaction constant.
The MRS is determined by the consumer's preferences and the relative marginal utilities of the two goods. The consumer's willingness to trade one good for another depends on their individual preferences and the additional utility or satisfaction they derive from consuming each good. If the consumer perceives a higher marginal utility from one good compared to the other, they will be willing to trade more units of the latter good for each unit of the former.