If the marginal rate of substitution is equal to 2 at a point on an indifference curve, then the consumer would:

• A. Give up 1 units of the 'y-axis' good for 2 units of the 'x-axis' good
• B. Give up 2 units of the 'y-axis' good for 1 unit of the 'x-axis' good
• C. Pay an additional $2 for one unit of the 'y-axis' good
• D. Pay an additional $2 for one unit of the 'x-axis' good

Answer: (B)

Verified step by step guidance

1. Understand the concept of the Marginal Rate of Substitution (MRS): The MRS is the rate at which a consumer is willing to give up one good in exchange for another while maintaining the same level of utility. It is the slope of the indifference curve at any given point.
2. Identify the given MRS: In this problem, the MRS is given as 2. This means the consumer is willing to give up 2 units of the 'y-axis' good for 1 additional unit of the 'x-axis' good to stay on the same indifference curve.
3. Interpret the MRS value: A MRS of 2 implies that the consumer values 1 unit of the 'x-axis' good as equivalent to 2 units of the 'y-axis' good. Therefore, the consumer would give up 2 units of the 'y-axis' good to gain 1 unit of the 'x-axis' good.
4. Evaluate the options: Compare the interpretation of the MRS with the given options. The correct interpretation aligns with the option that states the consumer would give up 2 units of the 'y-axis' good for 1 unit of the 'x-axis' good.
5. Conclude the analysis: Based on the understanding of MRS and the options provided, the correct choice is the one that reflects the consumer's willingness to trade 2 units of the 'y-axis' good for 1 unit of the 'x-axis' good, which matches the MRS of 2.