Marginal Rate of Substitution

Movement along a single indifference curve involves giving up some quantity of one good in exchange for more of the other, while keeping total satisfaction unchanged. The rate at which a consumer is willing to sacrifice units of one commodity ($Y$) to gain one additional unit of another commodity ($X$), while remaining on the same indifference curve, is called the Marginal Rate of Substitution of X for Y ($MRS_{xy}$). It is measured as the fall in $Y$ divided by the rise in $X$ between two nearby points on the curve, reported as a positive number: $MRS_{xy} = 4$ would mean the consumer gives up 4 units of $Y$ to gain 1 more unit of $X$ while staying equally satisfied. …