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how can we relate to marginal substitution with marginal utility

Posted by Poonam Goyal 6 years, 11 months ago

CBSE > Class 12 > Economics

1 answers

Sathyanarayana Sairam 6 years, 11 months ago

Marginal rate of substitution is only an extension of law of diminishing marginal utility. Marginal rate of substitution is the rate at which the consumer is willing to sacrifice additional units of Good-Y in order to increase the consumption of good-X. You can relate it to marginal utility as with the consumption of each additional unit of good X, the marginal utility derived from each unit keeps declining, and the consumer will decrease the consumption of good X. This is because the law of diminishing marginal utility states that "as more and more units of good-Y are sacrificed for the consumption of additional units of good-X, the marginal utility derived from each succesive unit keeps declining."

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