Marginal Rate of Substitution (MRS)

The marginal rate of substitution (MRS) is a concept in economics that measures how much of one good a consumer is willing to give up in order to get one more unit of another good. It is a measure of the consumer's relative preferences for the two goods.

The MRS is calculated by dividing the marginal utility of one good by the marginal utility of the other good. For example, if a consumer is willing to give up one unit of good A in order to get two units of good B, then the MRS is 2. This means that the consumer values two units of good B as much as one unit of good A.

The MRS is an important concept in economics because it can be used to predict how consumers will behave in different market conditions. For example, if the price of good A increases, then the MRS will decrease. This is because the consumer will be less willing to give up good A in order to get good B.

The MRS can also be used to calculate the consumer's indifference curve. An indifference curve is a curve that shows all of the combinations of two goods that provide the consumer with the same level of satisfaction. The MRS is the slope of the indifference curve.

The MRS is a useful concept for understanding consumer behavior. It can be used to predict how consumers will respond to changes in prices and income.