Question

If indifference curves is concave to the origin it would implies _____________.

• A. constant marginal rate of substitution
• B. increasing marginal rate of substitution
• C. increasing returns to scale
• D. none of the above

Answer 1

Answer: (B)

increasing marginal rate of substitution

An increase in marginal rate of substitution implies that as you substitute more of one good for another, the more you would be sacrificing the other good. This means if you want more of good x, you would have to give up more of good y than you did earlier to get one more unit of good x.