Free Marginal Rate Of Substitution Essay Sample

Business

According to Professor BILAS the MRS of good X for Y is seen to be the quantity of good Y the consumer gives up to consumer one extra more unit of X while his level of satisfaction remains the same. (Economics.utoronto.ca, 2015)
Marginal rate of substitution is shown by indifference curves. The concept of Indifference curve shows us that when a person consumes one extra unit of the good on ‘x’ axis, an increase in his overall satisfaction would be experienced by him. However, if he has to maintain his satisfaction at that particular level as the previous one he should give up a few units of goods on ‘y’ axis. If this happens so, for example, if a person gives up 5 units of good Y to consume one extra unit of good X that would be the MRS. Both the goods on the indifference curves are equally preferred by the consumer.
As seen in the indifference curve, it slopes downwards from the left to right which is showing us the MRS. It diminishes because of several reasons.
(1) Each unit of good satisfies the want
(2) The goods aren’t perfect substitutes.
3) When a consumer keeps consuming a single commodity, the demand for that commodity eventually starts to fall.
4) This the person is willing to give up a particular quantity to get more and more of this good. (Economicsconcepts.com, 2015)

For example:

If I consume one ice lolly, It will taste yummy to me, and I would want another one. So I will buy another ice lolly. Now I would want another ice lolly but I have a restricted budget so I would have to give up the chocolate bar that I previously wanted as well. And continue to buy the ice lolly for the 3rd time conveniently.

References

Economics.utoronto.ca,. (2015). Examples and exercises on isoquants and the marginal rate of technical substitution. Retrieved 14 January 2015, from https://www.economics.utoronto.ca/osborne/2x3/tutorial/ISOQEX.HTM
Economicsconcepts.com,. (2015). Marginal Rate of Substitution (MRS) - Diminishing Marginal Rate of Substitution - Definition and Explanation - Example - Formula - Schedule - Diagram/Figure - Importance - Economicsconcepts.com. Retrieved 14 January 2015, from http://economicsconcepts.com/marginal_rate_of_substitution.htm