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.