Marginal Rate of Substitution (MRS)

Marginal Rate of Substitution (MRS) : It is the rate at which a consumeris willing to substitute good Y for good X.
MRS
Loss of Good Y
or 
Y
Gain of Good X
X



Indifference Curve : is a curve showing different combination of twogoods, each combinations offering the same level of satisfaction to the consumer.
Characteristics of IC
         Indifference curves are negatively sloped.

         Indifference curves are convex to the point of origin.

         Indifference curves never touch or intersect each other.

         Higher indifference curve represents higher level of satisfaction.

Consumer’s Equilibrium : It is a situation where a consumer is spendinghis income in such a way that he is getting maximum satisfaction.
Condition of Consumer’s Equilibrium
           Cardinal approach (Utility Analysis) : According to this approachutility can be measured. “Utils” is the unit of utility.

Condition

 In case of one community

MUmMuxIf MUm 1, MUx Px

Px



Where,
MUm = Marginal utility of money

MUx = Marginal utility of ‘x’, Px = Price of ‘x’
(ii)   In case of two commodity.
MUx
MUy
MUm
Px




Py

and MU must be decreasing


           Ordinal approach (Indifference Curve Analysis): According tothis approach utility can’t be measured but can be expressed in

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