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Substitute good. In microeconomics, substitute goods are two goods that can be used for the same purpose by consumers. [1] That is, a consumer perceives both goods as similar or comparable, so that having more of one good causes the consumer to desire less of the other good. Contrary to complementary goods and independent goods, substitute ...
Substitution effect. In economics and particularly in consumer choice theory, the substitution effect is one component of the effect of a change in the price of a good upon the amount of that good demanded by a consumer, the other being the income effect. When a good's price decreases, if hypothetically the same consumption bundle were to be ...
The elasticity of substitution is the change in the ratio of the use of two goods with respect to the ratio of their marginal values or prices. The most common application is to the ratio of capital (K) and labor (L) used with respect to the ratio of their marginal products and or of the rental price (r) and the wage (w).
In economics, the marginal rate of substitution (MRS) is the rate at which a consumer can give up some amount of one good in exchange for another good while maintaining the same level of utility. At equilibrium consumption levels (assuming no externalities), marginal rates of substitution are identical. The marginal rate of substitution is one ...
In economics, gross substitutes (GS) is a class of utility functions on indivisible goods.An agent is said to have a GS valuation if, whenever the prices of some items increase and the prices of other items remain constant, the agent's demand for the items whose price remain constant weakly increases.
Constant elasticity of substitution (CES) is a common specification of many production functions and utility functions in neoclassical economics. CES holds that the ability to substitute one input factor with another (for example labour with capital) to maintain the same level of production stays constant over different production levels. For ...
Samuelson condition. The Samuelson condition, due to Paul Samuelson, [1] in the theory of public economics, is a condition for optimal provision of public goods. For an economy with n consumers, the conditions is: MRS i is individual i 's marginal rate of substitution and MRT is the economy's marginal rate of transformation [2] between the ...
An equivalent definition is: for any sets of items and , An additive utility function is characteristic of independent goods. For example, an apple and a hat are considered independent: the utility a person receives from having an apple is the same whether or not he has a hat, and vice versa.