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| 1. |
Explain the meaning of diminshing marginal rate of substitution with the help of a numercial example |
| Answer» <html><body><p></p>Solution :Marginal Rate of Substitution (MRS) refers to the rate at which a <a href="https://interviewquestions.tuteehub.com/tag/consumer-25599" style="font-weight:bold;" target="_blank" title="Click to know more about CONSUMER">CONSUMER</a> is willing to substitute one good for each additional unit of other good. Algebraically. <br/> `MRS = (Delta Y)/(Delta X)` <br/> It shows how many units of good Y the consumer is willing to <a href="https://interviewquestions.tuteehub.com/tag/sacrifice-1193053" style="font-weight:bold;" target="_blank" title="Click to know more about SACRIFICE">SACRIFICE</a> to gain one additional unit of good X. <br/> The following <a href="https://interviewquestions.tuteehub.com/tag/schedule-637564" style="font-weight:bold;" target="_blank" title="Click to know more about SCHEDULE">SCHEDULE</a> explains the concept of MRS <br/> <img src="https://d10lpgp6xz60nq.cloudfront.net/physics_images/CBSE_COMM_SP_XII_ECO_E01_008_S01.png" width="80%"/> <br/> As the consuer moves from consumption combination P to consumption combination <a href="https://interviewquestions.tuteehub.com/tag/q-609558" style="font-weight:bold;" target="_blank" title="Click to know more about Q">Q</a>, consumption of good X increases from 2 units to 3 units while, the consumption of good Y falls from 10 units to 5 units. That is to gain one additional unit to good X, the consumer sacrifices 5 units of good Y. Thus, the MRS is 5</body></html> | |