Question 4
Suppose that we know that a person has complete, transitive and
reflexive preferences over bundles of consumption of good 1 and good 2.
Suppose that the marginal rate of substitution is well-defined at each
point and we are told its value at each point. Intuitively, is this
enough to deduce the indifference curves?
Correct: yes
False: no
Explanation:
Intuitively, we can draw at each point a little piece of a straight line
with slope equal to the MRS and then ‘see’ how the indifference curves
roughly look like. More precisely, we can start at any point and then
trace out a line by at each point continuing in the direction with slope
equal to \(\text{MR}S_{1,2}\) at the point.