This video explains how to calculate and use the marginal rate of substitution (MRS). We start by learning how to calculate it, then move on to use it in order to properly draw indifference curves and, finally, we analyse the MRS for different kinds of indifference curves.
The marginal rate of substitution (MRS) can be defined as how many units of good x have to be given up in order to gain an extra unit of good y, while keeping the same level of utility. Therefore, it involves the trade-offs of goods, in order to change the allocation of bundles of goods while maintaining the same level of satisfaction. The MRS is linked with indifference curves, since the slope of this curve is the MRS.
The marginal rate of substitution should not be confused with the marginal rate of technical substitution or the marginal rate of transformation.
Learn more by reading the dictionary entry.