Marginal Rate of Substitution What is the marginal rate of substitution (MRS) and why does it ...

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Marginal Rate of Substitution What is the marginal rate of substitution (MRS) and why does it diminish as the consumer substitutes one product for another? Use examples to illustrate. Guided Response:...

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Marginal Rate of Substitution

What is the marginal rate of substitution (MRS) and why does it diminish as the consumer substitutes one product for another? Use examples to illustrate.
Guided Response: In 300 words or more, please, provide your response to the above discussion question. Find two goods from your own consumption basket and explain how the MRS changes for the two products as you substitute one for the other. Substantive responses use theory, research, and experience or examples to support ideas and further the class knowledge on the discussion topic.

Answered Same Day May 13, 2021

Dr. Smita · Accepted Answer

Marginal Rate of Subsitution
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Marginal Rate of Subsitution		[Type the document subtitle]		[Pick the date]		Lenovo	
Marginal Rate of Substitution
Theory of consumer behavior and indifference curves is based on the assumption that the consumer has to choose between two goods with his limited income in order to maximize his satisfaction level. Marginal rate of substitution refers to the rate at which consumer substitute one good for another in order to stay at the same satisfaction level. MRS is measured by the slope of indifference curve. Marginal rate of substitution is diminishing because of the diminishing marginal utilities for goods. The classic example of the consumption of glass of water represents the case of diminishing marginal utility. The consumption of first glass of water gives high level of satisfaction. As and when the consumer consumes subsequent glasses of water his derived satisfaction from water goes down. This supports the principle of marginal rate of substitution. When you have more and more of one good the satisfaction from that good goes down contrary to the second good which is less in quantity. The diminishing marginal rate of substitution gives the downward slope to the indifference curve.
Marginal Rate of Substitution between Good X and Good Y
The two goods that can be thought for consumption are burgers and hotdogs. Both these goods are consumed on daily basis. The price of both the good are comparable and can be taken as substitutes for one another and gives same level of satisfaction. The food budget is limited. The days when only hot dogs are consumed, attraction to eat burgers increases. After few continue meals of hot dogs the satisfaction from its consumption declines and the taste buds gets bored and need a change. Similar is the case when more of burgers are consumed, after few meals it gets boring and attraction to consume hot dogs increases.
It can be safely concluded from our daily observations that Marginal rate of substitution is declining.
REFERENCES:
Brown, B. J. "Changes in Demand: The MRS and RP Effects," Pace University Economics Working Paper, 2013.
Hicks, J. R.; Allen, R. G. D. "A Reconsideration of the Theory of Value," (Part I),Economics, N.S., I, 1, February 1934a, pp. 52–76.
"Professor Slutsky's Theory of Consumers' Choice,"Review of Economic Studies, III, February 1936, pp. 120–9.

Marginal Rate of Substitution What is the marginal rate of substitution (MRS) and why does it diminish as the consumer substitutes one product for another? Use examples to illustrate. Guided Response:...

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