How to calculate the marginal rate of substitution
MRS(x,y) = the marginal rate of substitution between both goods dx = the change in good x, the number of units a consumer is willing to give up . dy = the change in good y, the number of units a Marginal rate of substitution is the rate at which a consumer is willing to replace one good with another. For small changes, the marginal rate of substitution equals the slope of the indifference curve. An indifference curve is a plot of different bundles of two goods to which a consumer is indifferent i.e. he has no preference for one bundle over the other. The Marginal Rate of Substitution is the amount of of a good that has to be given up to obtain an additional unit of another good while keeping the satisfaction the same. As some amount of a good has to be sacrificed for an …