Question

what is the principle of the marginal rate of substitution (MRS)? draw a set of indifference curve for which MRS is constant between two products; MRS is zero

how do we obtain the demand curve using indifference curve analysis explain

using indifference curve analysis show and explain the income effect and substitution effect due to price change of a product (assume a price fall of product on the X-ais)

Briefly explain engle curve for inferior superior and normal goods where do the agricultural products belong?

Answer 1

1)

Marginal rate of substitution refers to the rate at which some units of a good given up to have some more units of another goods by a consumer, while acheiving the same utility from the combination as earlier before change.

the formula for MRS is :

MRS = change in good X/ Change in good Y

Consider the follwing table that shows MRS at different combinations and also upon the data given in table the indifference curves have been drawn below -

When MRS is constant - occurs when goods are perfect substitute

Utility (U=x+y)	Good X	Good Y	MRS
5	5	0
5	4	1	-1
5	3	2	-1
5	2	3	-1
5	1	4	-1
5	0	5	-1

When MRS is zero- occur when goods are perfectly complimentary

I1 is indifference when MRS is constant and I2 is indifference when MRS is zero.