Marginal Rate of Substitution:
Let us assume that we are dealing with a consumer with well-behaved preferences. If we start from point A in figure shown below and consider an increase in the consumption of good 1, by the increment ΔQ1, we may ask by how much we must reduce the consumption of good 2 in order to keep the consumer on the indifference curve through A (i.e., to end up at point B). Well, from the figure it is clear that this decrease is equal to ΔQ2. Note that I’ve drawn a line through points A and B. The slope of this line is equal to,
−ΔQ2/ΔQ1
This slope turns out to be quite important, in fact so important that economists have given it its own name: the marginal rate of substitution between good 1 and 2, (MRS12). If we make ΔQ1 very small ΔQ2 would likewise be very small, and in this case the MRS12 shows the slope of the indifference at a single point. The importance of MRS12 is that is shows the extent to which the consumer wants to exchange good 2 for more of good 1. It is the “internal” rate of exchange between the two goods. Another useful interpretation is that MRS12 shows how much the consumer is willing to pay (in terms of good 2) in order to acquire one more unit of good 1. It shows the marginal willingness to pay, for good 1 (in terms of good 2). The phrase “in terms of good 2j is somewhat awkward to add all the time, but it is necessary to be clear about the units we use in measuring MRS12. Things become easier to interpret (and remember) in the case where x2 stands for “all other goods”, or simply money income, because in that case MRS12 shows the marginal willingness to pay for good 1 in terms of money.
The convex shape of a well-behaved indifference curve means that MRS12 decreases, or “diminishes” as we slide down the indifference curve, from the left to the right. In economic terms this means that the marginal willingness to pay for an additional unit of good 1 is high when the consumer has relatively little of good 1, and a lot of good 2 (money), and that the more of good 1 he/she gets (and the less money left over) the less will be the marginal willingness to pay for an additional unit of good 1.
Latest technology based Economics Online Tutoring Assistance
Tutors, at the www.tutorsglobe.com, take pledge to provide full satisfaction and assurance in Intermediate Microeconomics homework help via online tutoring. Students are getting 100% satisfaction by online tutors across the globe. Here you can get homework help for Intermediate Microeconomics, project ideas and tutorials. We provide email based Intermediate Microeconomics homework help. You can join us to ask queries 24x7 with live, experienced and qualified online tutors specialized in Intermediate Microeconomics. Through Online Tutoring, you would be able to complete your homework or assignments at your home. Tutors at the TutorsGlobe are committed to provide the best quality online tutoring assistance for Economics homework help and assignment help services. They use their experience, as they have solved thousands of the Economics assignments, which may help you to solve your complex issues of Intermediate Microeconomics. TutorsGlobe assure for the best quality compliance to your homework. Compromise with quality is not in our dictionary. If we feel that we are not able to provide the homework help as per the deadline or given instruction by the student, we refund the money of the student without any delay.
tutorsglobe.com symbiotic-non symbiotic nitrogen fixation assignment help-homework help by online non-biological fixation tutors
tutorsglobe.com pulse rate assignment help-homework help by online circulation tutors
Resistivity Profiling tutorial all along with the key concepts of Targets, Ideal traverse target, Choice of array, Traverse field-notes, Displaying traverse data, topography, Gradient array
www.tutorsglobe.com offers electrophilic reagents homework help, electrophilic reagents assignment help, online tutoring assistance, organic chemistry solutions by online qualified tutor's help.
simple harmonic motion i tutorial all along with the key concepts of relating s.h.m. with circular motion, acceleration, period, velocity, displacement, phase difference of quarter, mass of oscillating system
tutorsglobe.com activation of fatty acids assignment help-homework help by online oxidation of fatty acids tutors
tutorsglobe.com money assignment help-homework help by online monetary policy tutors
tutorsglobe.com carboxylation reactions assignment help-homework help by online c3 and c4 pathways tutors
tutorsglobe.com modern theory of rent assignment help-homework help by online rent tutors
www.tutorsglobe.com offers biophysical chemistry homework help, biophysical chemistry assignment help, online tutoring assistance, physical chemistry solutions by online qualified tutor's help.
Polymer Degradation tutorial all along with the key concepts of Hydrolytic Degradation, Oxidative Degradation, Ionizing-Radiation Degradation, Galvanic action
tutorsglobe.com clinical manifestations assignment help-homework help by online candida albicans tutors
Theory and lecture notes of Normal Distribution all along with the key concepts of Normal Distributions, Standard Normal Distribution, Central Limit Theorem, Sampling Error, Z-score and Correction for Continuity. Tutorsglobe offers homework help, assignment help and tutor’s assistance on Normal Distribution.
tutorsglobe.com cloning assignment help-homework help by online modern genetics tutors
tensed due to complex and time-consuming tasks? say goodbye to your woes with business economics assignment help!
1939610
Questions Asked
3689
Tutors
1448519
Questions Answered
Start Excelling in your courses, Ask an Expert and get answers for your homework and assignments!!