Asked by ritika sharma on May 08, 2024
Verified
Explain the meaning of the marginal rate of substitution.
Marginal Rate of Substitution
The speed at which a consumer is ready to replace one product with another, keeping their level of contentment constant.
- Explain the significance of the marginal rate of substitution in consumer choice theory.
Verified Answer
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Nicholas SheehanMay 15, 2024
Final Answer :
The slope of an indifference curve at each point measures the marginal rate of substitution (MRS), which shows the rate at which the consumer must substitute one good for the other to remain equally satisfied. The diminishing slope of the indifference curve means that the willingness to substitute one good for another diminishes as more of the good is obtained.
Learning Objectives
- Explain the significance of the marginal rate of substitution in consumer choice theory.
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