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 are the properties of indifference curve

Deficiency of iodine Inadequate iodine also leads to dry skin, loss of hair, exhaustion and sluggish reflexes. For the developing fetus, infant and young children, iodine deficienc

Assume the banking system contains: Total Reserves                         $ 80 billion Transactions Deposited          $800 billion Cash held by public                 $1

a) Explain the conditions under which a monopolist is able to price discriminate. b) Demonstrate the relationship between a firm's marginal revenue function and its relationship

What does the IS-LM framework mean?  The IS-LM model helps us to understand the two opposing theories. The IS (investment/saving) curve shows equilibrium in product markets. Th

If producers expect future prices to enhance, current supply will decline in favor of selling inventories at higher prices later.  In other words, supply will reduce (a shift to th

Why has it been difficult to produce a single estimate of an environmentally adjusted or "greened" GDP? What are the two approaches that can be used to put a value on environmental

Price Elasticity A measure of the change in demand for a product relative to unit changes in the price of the product. If the percentage change in quantity demanded is greater

In neoclassical economics, equilibrium exists when supply equals demand for a particular commodity. General equilibrium is a special (purely hypothetical) condition in which every

Consider an upstream firm in Russia that mines iron ore at a total cost of $15 q , where q is the number of tons of ore. This upstream firm then ships ore to Germany for processi