marginal rate of substitution


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marginal rate of substitution

a ratio of the MARGINAL UTILITIES of two products. It is measured by the slope of the consumer's INDIFFERENCE CURVE between the two products. As an individual consumes more of one product (A), he will tend to become satiated with it and would be prepared to give up less of an alternative product in order to acquire more units of A (a diminishing marginal rate of substitution). In order to maximize his utility, a consumer must equate the ratio of the marginal utilities of the two products to the ratio of their prices (see CONSUMER EQUILIBRIUM). For an economy, the optimal distribution of national output is achieved when the marginal rate of substitution for all consumers is equal. See PARETO OPTIMALITY, EDGEWORTH BOX.
References in periodicals archive ?
The marginal rate of substitution of the jth throughput to the kth throughput at the frontier point [z.sub.o] is defined as follows:
The marginal rate of substitution between any two factors diminishes as one factor increases.
The marginal rate of substitution can be interpreted as the ratio of the marginal utilities (as some economists continue to do for ease of exposition), but it does not need to be interpreted that way.
Secondly, operators will choose its investment either in equipment or in base stations to keep a throughput speed, so that the technical marginal rate of substitution can equal the ratio of the marginal costs.
1) tax-evasion becomes rational from taxpayer's point of view in all cases in which the marginal rate of substitution of consumption with respect to labor is less (as modulus) than real wage rate for the time unit spent on labor after taxation,
If the marginal rate of substitution of [c.sup.0]([i.sup.*]) for [c.sup.1]([i.sup.*]) increases, then the number of markets, where a shopper uses credit, [i.sup.*], increases and a shopper purchases a larger variety of goods with credit.
any one individual's marginal rate of substitution, but rather on
Firms produce based on the domestic relative price (or the marginal rate of transformation), which is greater than the world relative price (or the marginal rate of substitution in consumption).
By using an expression which is currently employed in the literature in a related context, we can summarise the above interpretation of the marginal rate of substitution by saying that [MRS.sup.i.sub.21]([x.sub.i]) represents consumer i's 'reservation price' of commodity 1 in terms of commodity 2, when i's consumption is [x.sub.i].
It is straightforward to show that the marginal rate of substitution between consumption and labor is given by
If [I.sub.0] and [I.sub.1] are considered to be two different "commodities," then the marginal rate of substitution (MRS) of [I.sub.0] for [I.sub.1] is

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