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Explain the concept of Marginal Rate of Substitution (MRS) by giving an example. Explain its behaving along an indifference curve.

Answer» <html><body><p></p>Solution :<a href="https://interviewquestions.tuteehub.com/tag/mrs-549296" style="font-weight:bold;" target="_blank" title="Click to know more about MRS">MRS</a> refers to the rate at which the commodities can be substituted with each other, so that total satisfaction of the consumer remains the same. <br/> <a href="https://interviewquestions.tuteehub.com/tag/example-978283" style="font-weight:bold;" target="_blank" title="Click to know more about EXAMPLE">EXAMPLE</a>. Let the <a href="https://interviewquestions.tuteehub.com/tag/two-714195" style="font-weight:bold;" target="_blank" title="Click to know more about TWO">TWO</a> goods be X and Y. Given a certain consumption of X and Y, suppose consumer wants one more unit of X. With increase in one more unit of X, marginal utility of X will reduce. As a <a href="https://interviewquestions.tuteehub.com/tag/result-1187343" style="font-weight:bold;" target="_blank" title="Click to know more about RESULT">RESULT</a>, consumer will be willing to sacrifice less units of Y. As he goes on obtaining more and more of X, marginal utility of X goes on falling and thus, consumer is willing to sacrifice less and less of Y. <br/> Marginal Rate of <a href="https://interviewquestions.tuteehub.com/tag/substitution-1231654" style="font-weight:bold;" target="_blank" title="Click to know more about SUBSTITUTION">SUBSTITUTION</a> diminishes as the consumer moves downward along the same indifference curve. it shows that consumer is willing to sacrifice lesser units of a Good Y, in order to gain one additional unit of Good X. This happens due to the operation of law of diminishing marginal utility.</body></html>


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