What Is the Marginal Rate of Substitution Between Two Goods

question 449

Essay

What is the marginal rate of substitution between two goods and how is it related to the indifference curve?

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Definitions:

Substitution

The economic principle stating that as prices rise or consumer preferences change, individuals substitute one good or service for another.

Utility Function

A mathematical representation of how different combinations of goods or services generate levels of happiness or satisfaction to the consumer.

Utility

A measure of the satisfaction or happiness that a person derives from consuming goods and services.

Marginal Rate

Refers to the rate at which one quantity changes with respect to a change in another, commonly used in economics to describe the marginal rate of substitution or marginal rate of transformation.