Search results
Results from the WOW.Com Content Network
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.
Indifference curves exhibit diminishing marginal rates of substitution; The marginal rate of substitution tells how much 'y' a person is willing to sacrifice to get one more unit of 'x'. [clarification needed] This assumption assures that indifference curves are smooth and convex to the origin.
Revealed preference theory arose because existing theories of consumer demand were based on a diminishing marginal rate of substitution (MRS). This diminishing MRS relied on the assumption that consumers make consumption decisions to maximise their utility .
The rate of substitution is the least favorable rate at which an agent is willing to exchange units of one good or service for units of another. The marginal rate of substitution (MRS) is the rate of substitution at the margin; in other words, given some constraint.
The slope of the curve (the negative of the marginal rate of substitution of X for Y) at any point shows the rate at which the individual is willing to trade off good X against good Y maintaining the same level of utility. The curve is convex to the origin as shown assuming the consumer has a diminishing marginal rate of substitution.
The marginal rate of substitution is the rate of substitution that is the least favorable rate, at the margin, at which an agent is willing to exchange units of one good or service for units of another. A marginal benefit is a benefit (howsoever ranked or measured) associated with a marginal change.
In managerial economics, the unit of isoquant is commonly the net of capital cost. As such, isoquants by nature are downward sloping due to operation of diminishing marginal rates of technical substitution (MRTS). [3] [4] The slope of an isoquant represents the rate at which input x can be substituted for input y. [5]
When relative input usages are optimal, the marginal rate of technical substitution is equal to the relative unit costs of the inputs, and the slope of the isoquant at the chosen point equals the slope of the isocost curve (see conditional factor demands). It is the rate at which one input is substituted for another to maintain the same level ...