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When two goods are perfect substitutes of each other then
  • a)
    MRS is falling
  • b)
    MRS is rising
  • c)
    MRS is constant
  • d)
    None of the above
Correct answer is option 'C'. Can you explain this answer?
Most Upvoted Answer
When two goods are perfect substitutes of each other thena)MRS is fall...
Perfect Substitutes and MRS

Perfect substitutes refer to two goods that can be used interchangeably with each other without any difference in the satisfaction or utility derived from them. For example, if a consumer is indifferent between consuming one apple and one orange, then these two goods are perfect substitutes.

On the other hand, Marginal Rate of Substitution (MRS) is the rate at which a consumer is willing to substitute one good for another while keeping the total utility or satisfaction constant. It is the slope of the indifference curve at any given point.

MRS for Perfect Substitutes

When two goods are perfect substitutes, MRS is constant. This is because the consumer is indifferent between the two goods, and is willing to substitute one for the other at a fixed rate. For example, if a consumer is willing to substitute one apple for one orange, then the MRS between apples and oranges is constant at 1.

This can also be seen from the indifference curve diagram for perfect substitutes, where the indifference curve is a straight line with a constant slope. The slope of the indifference curve is the MRS, and since it is constant, the MRS between the two goods is also constant.

Conclusion

In conclusion, when two goods are perfect substitutes, the MRS between them is constant. This is because the consumer is indifferent between the two goods and is willing to substitute one for the other at a fixed rate.
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When two goods are perfect substitutes of each other thena)MRS is fall...
MRS is marginal rate of substitution. It is defined as the rate at which one good is given up or substituted in order to acquire another good. Generally, MRS decreases as additional units of one goods are given up for the purpose of acquiring another good, we tend to retain the remaining units of the goods which were given up. When the goods substituted in this manner are perfect substitutes, we can easily substitute the use of one good with another regardless of the number of units. Hence MRS will be a constant
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When two goods are perfect substitutes of each other thena)MRS is fallingb)MRS is risingc)MRS is constantd)None of the aboveCorrect answer is option 'C'. Can you explain this answer?
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