Question

Explain the following:

What will be the shape of an indifference curve when Marginal rate of substitution between two goods is constant?

Answer 1

When the Marginal Rate of Substitution (MRS) between two goods is constant, the indifference curve is a straight line that slopes downward from left to right.

The Marginal Rate of Substitution (MRS) is the rate at which a consumer is willing to give up one good in exchange for an additional unit of another good, while keeping the level of satisfaction (utility) constant.

MRS = `(ΔY)/(ΔX)`

Constant MRS means the consumer is willing to substitute the two goods at a fixed rate, regardless of how much they already have of each. For example, if MRS = 1, the consumer is always willing to give up 1 unit of Good Y to get 1 unit of Good X, no matter the quantity they possess.

The indifference curve becomes a straight line because the rate of trade-off between the two goods does not change.

The slope of this straight line = constant MRS

Indifference Curve: Straight Line with Slope = −MRS

This occurs when two goods are perfect substitutes. Example: A consumer treats 1 bottle of Coke and 1 bottle of Pepsi as equally satisfying at all times.