Question

Which one is not an assumption of the theory of demand based on indifference curves analysis?

• A. Given scale of preferences as between different combinations of two goods
• B. Diminishing marginal rate of substitution
• C. Constant marginal utility of money
• D. Consumers would always prefer more of a particular good to less of it, other things remaining the same

Answer 1

The correct option is C Constant marginal utility of money

The constant marginal utility of money is not an assumption of indifference curve analysis. It's an assumption of the law of diminishing marginal utility. In law of demand, the marginal utility derived from each successive units decreases.

Hence, option C is correct.