The Marginal Rate of Technical Substitution

question 137

Multiple Choice

The marginal rate of technical substitution:

• A) determines the rate at which a producer can substitute between two inputs in order to increase one additional unit of output.
• B) is the absolute value of the slope of the isoquant.
• C) is the absolute value of marginal revenue.
• D) is constant along the isoquant curve.

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Definitions:

Surplus

A situation where the quantity supplied of a good or service exceeds the quantity demanded at the current price.

Deflationary Gap

A situation where total spending (aggregate demand) in an economy is lower than the level required to sustain full employment output, leading to deflation and unemployment.

Equilibrium GDP

The level of Gross Domestic Product at which aggregate supply equals aggregate demand, leading to an economy operating at full capacity without inflationary pressures.

Full Employment GDP

The level of gross domestic product achieved when there is no cyclical unemployment in the economy, representing an ideal economic state where all willing and able workers find employment.