Cher\'s marginal rate of substitution of earrings( E ) for necklaces ( N ) is 5

Question

Cher's marginal rate of substitution of earrings(E) for necklaces (N) is 5 (MRSEN = 5). This information implies that: Cher should own 5 times as many necklaces as pairs of earrings. Cher is willing to trade away 5 necklaces for one more pair of earrings, holding her utility constant. Cher will move to a higher indifference curve if she trades away 5 necklaces for one more pair of earrings. the slope of the indifference curve is 5 and thus upward sloping. Cher's marginal rate of substitution of earrings(E) for necklaces (N) is 5 (MRSEN = 5). This information implies that: Cher should own 5 times as many necklaces as pairs of earrings. Cher is willing to trade away 5 necklaces for one more pair of earrings, holding her utility constant. Cher will move to a higher indifference curve if she trades away 5 necklaces for one more pair of earrings. the slope of the indifference curve is 5 and thus upward sloping.

Explanation / Answer

MRS between two goods measures the amount of one good to be given up, in order to obtain one additional unit of the other good.

So, MRSEN = 5 signifies that Cher will give up (trade away) 5 necklaces for obtaining one more pair of earrings, keeping utility unchanged.

So correct option (2).

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