Answer to Question #235800 in Microeconomics for Daakyehene

Question

1. Explain the law of diminishing marginal utility.

2. What do you understand by Marginal Rate of Substitution (MRS) between two goods? Illustrate with diagram(s).

Answer 1

Solution:

1.). The law of diminishing marginal utility states that cateris paribus, as consumption increases, the marginal utility derived from each additional unit decreases. Marginal utility refers to the change in utility as an additional unit is consumed.

 

2.). The Marginal Rate of Substitution (MRS) between two goods refers to the rate at which a consumer is willing to give up quantities of good X for one more unit of good Y at the same utility. The MRS is used to examine the indifference curve.

MRS is the slope of the indifference curve at any given point along the curve and shows a utility frontier for each combination of good X and good Y.

 

This is displayed by the below graph: