Marginal rate of substitution, Microeconomics

The marginal rate of substitution (MRS) quantifies the quantity of one good a consumer will sacrifice to get more of the other good.

– It is calculated by the slope of the indifference curve.

292_marginal rate of substitution.png

We will now add a fourth assumption with respect to consumer preference:

    With an indifference curve there is a diminishing marginal rate of substitution.

Note the MRS for AB was 6, whereas that for DE was 2.

Marginal Rate of Substitution

Indifference curves are convex because more of one good is utilized, a consumer would prefer to sacrifice fewer units of a second good to obtain extra units of the first one.

Consumers select a balanced market basket

Perfect Substitutes and Perfect Complements

Two goods are perfect alternates when the marginal rate of substitution of one good for another is constant or stable.

607_marginal rate of substitution1.png

Two goods are complements when indifference curves for the goods are maintained as right angles.

977_marginal rate of substitution2.png

Posted Date: 7/24/2012 9:30:02 AM | Location : United States







Related Discussions:- Marginal rate of substitution, Assignment Help, Ask Question on Marginal rate of substitution, Get Answer, Expert's Help, Marginal rate of substitution Discussions

Write discussion on Marginal rate of substitution
Your posts are moderated
Related Questions
what is the theory of Second best? Prove the theorem with the help of a diagram.

AS STUDENT OF ECONOMICS ELABORATE ON THE KALDOR-HISCKS COMPENSATION

The price at which output is sold in a perfectly competitive market is determined by

Market research has revealed the following information about the market for chocolate bars: The demand schedule can be represented by the equation QD= 1,600-300P, where QD is the q

International economic relations also depend, in large calculate, on monetary =issues.  You are unlikely to accept the Turkish Lire in payment for your wages in this country, easil

What is the difference between houehold and consumers?

Law of conservation of mass was proposed by Lavoisier & verified by Landolt. According to Law of conservation of mass law Matter is neither created nor destroyed in the course of c

The economic model forecasting involves estimating several simultaneous equations which are generally behavioural equation mathematical identities and market clearing equations. T

how is price and output equilibrium determined in Williamson''s model of managerial discretion?

Price elasticity is used in economics to determine the changes in price of goods and services. It measures the change in price demanded and quality supplied. Determinants of pri