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
which three group of the periodic table contain the most elements classified as metalloids (semimetals)?

Use a supply and demand diagram to help explain how a city council might help to decrease traffic congestion in the city during weekends. pointing out that demand happens d

I am risk averse, and trying to maximize my expected value of c0, 5, where c is my fortune. I have 50.000 in cash, and also art with a value of 200.000 which I keep in my basement.

2 i) Explain what are the key assumptions by the welfarist approach. ii) Define and discuss the properties of a Generalized Utilitarian social welfare function and represent it

What is Demand Forecasting? Explain in brief various methods of forecasting Demand.

Insurance - Risk averse are willing to pay to keep away from risk. - If cost of insurance equals expected loss, risk averse people will buy sufficient insurance to totally r

Evaluate the equilibrium price and quantity (a) Find the equilibrium price and quantity (b) If government in trying to control the price of the good fixes the price at c550

why does the quantity of education change in the private universities much more responsive than salt as to changes in price?