MARGIANL RATE OF SUBSTITUTION

by • 24/06/2011 • B.COM PART 1 EconomicsComments (0)547

Marginal rate of Substitution (MRS) shows how much of one commodity is substituted for how much of another MRS is an important tool of indifference curve.

As we see that when our consumer has 15 apples and no mangoes he will prepared to forgot 4 apples for 1 mango and yet remain at the same level of satisfaction.

In his second combination he will be prepared to accept 4 apples for the loss may be defined as the amount of apples that is scarified for obtaining one mango or it may also be defined as the amount for the loss of one mango so that he may remain at the same level of satisfaction.

In Hick’s Word

We may define Marginal rate of Substitution of X for Y as the quantity of Y. Which would just compensate the consumer for the loss of the marginal unit of X.

It’s a common observation that as we come to have more and more of one good, we shall be prepared to foryo less and less of the other. It is simply says that MRS of good X for good Y will falls as we have more of x and less of Y which we see clearly in other combination and get ratios (3 : 1, 2 : 1, 1 : 1)

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