Question

Explain with the help of a hypothetical numerical example the assumption of diminishing MRS under the ordinal approach of theory of consumers behaviour

Answer 1

MRS under ordinal approach theory of consumer behaviour

Explanation:

Utility is the want satisfying capacity of a commodity and in case of ordinal utility consumer only ranks his preference for eg: a consumer may prefer tea over coffee. MRS ( Marginal rate of substitution ) is the rate at which consumer is willing to sacrifice one commodity to gain one extra unit of other commodity.

MRS keeps declining because consumer is willing to sacrifice lesser unit for every addition of other good this leads to downward sloping Convex indifference curve.

hypothetical numerical example: For example if we increase number of apple from 1, 2,3,4,5 which leads to fall in number of oranges from 15, 11, 8,6,5 then the MRS will be 4,3,2,1 respectively. which shows that MRS is falling.

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Hypothetical numerical example the assumption of diminishing MRS under the ordinal approach

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