<Ul> <Li> Indifference curves exhibit diminishing marginal rates of substitution </Li> </Ul> <Li> Indifference curves exhibit diminishing marginal rates of substitution </Li> <Dl> <Dd> <Ul> <Li> The marginal rate of substitution tells how much' y' a person is willing to sacrifice to get one more unit of' x' . </Li> <Li> This assumption assures that indifference curves are smooth and convex to the origin . </Li> <Li> This assumption also set the stage for using techniques of constrained optimization because the shape of the curve assures that the first derivative is negative and the second is positive . </Li> <Li> Another name for this assumption is the substitution assumption . It is the most critical assumption of consumer theory: Consumers are willing to give up or trade - off some of one good to get more of another . The fundamental assertion is that there is a maximum amount that "a consumer will give up, of one commodity, to get one unit of another good, in that amount which will leave the consumer indifferent between the new and old situations" The negative slope of the indifference curves represents the willingness of the consumer to make a trade off . </Li> </Ul> </Dd> </Dl> <Dd> <Ul> <Li> The marginal rate of substitution tells how much' y' a person is willing to sacrifice to get one more unit of' x' . </Li> <Li> This assumption assures that indifference curves are smooth and convex to the origin . </Li> <Li> This assumption also set the stage for using techniques of constrained optimization because the shape of the curve assures that the first derivative is negative and the second is positive . </Li> <Li> Another name for this assumption is the substitution assumption . It is the most critical assumption of consumer theory: Consumers are willing to give up or trade - off some of one good to get more of another . The fundamental assertion is that there is a maximum amount that "a consumer will give up, of one commodity, to get one unit of another good, in that amount which will leave the consumer indifferent between the new and old situations" The negative slope of the indifference curves represents the willingness of the consumer to make a trade off . </Li> </Ul> </Dd>

The rate of substitution along the indifference curve implies