Marginal Rate of Substitution Assignment Help
Marginal rate of substitution (MRS) could be defined as the ratio at which a consumer is willing to exchange one good for
another at a particular point of indifference map. The rate of exchange of goods maintains the original utility level of the consumer (McEachern, 2011). In other words, it could be explained as a rate at which an individual must give up a product for obtaining one more unit of another product, while the overall satisfaction for consumer remains constant. For example, the MRS is calculated between two goods on an indifference curve. This curve demonstrates a frontier of equal utility for the each combination of two substitute goods (Pemberton & Rau, 2001). For example, tea and coffee are substitutes of each other. In the cold time, if the MRS at an indifference curve of tea for coffee is 2 then the individual will be willing to give up the two cup of tem for obtaining the one extra cup of coffee.
The use of one cup of coffee by giving up one cup of tea would be effective to maintain the same level of satisfaction or utility for the individual. But at the same time, the MRS changes continuously for a given point of time on an indifference curve, which exhibits the slop of curve at that point (Mankiw, 2011). MRS diminishes as an individual moves down on the standard convex shaped curve. Our assignment help experts says that this type of curve depicts that an individual moves along with indifference curve while keeping the utility level of consumer constant, the MRS decreases. It is because if a consumer constantly gives up one product for another then to compensate him/her give-up will demand more amounts of another good (Schotter, 2008). For example, if an individual has lot of eggs and small amount of bacon then the individual will be willing to give up only few amounts of eggs for getting one more unit of bacon. For first unit, he/she can give-up higher units of eggs but as the units will be gained the amount of eggs given-up for compensation will decrease and due to this, the MRS also diminishes as the consumer substitute one product for another (Lipsey & Harbury, 1992). A common sense factor works in this situation, which enables the consumer to give up more units constantly for getting one more unit of substitute product (Pemberton & Rau, 2001).
References Lipsey, R.G. & Harbury, C. (1992). First Principles of Economics (2nd ed.). UK: Oxford University Press. Mankiw, N.G. (2011). Principles of Economics (6th ed.). USA: Cengage Learning. McEachern, W.A. (2011). Economics: A Contemporary Introduction (9th ed.). USA: Cengage Learning. Pemberton, M. & Rau, N. (2001). Mathematics for Economists: An Introductory Textbook. UK: Manchester University Press. Schotter, A. (2008). Microeconomics: A Modern Approach. USA: Cengage Learning.
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