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Indifference curve and marginal rate of substitution in consumer theory

posted in: Shopping An indifference curve connects combinations of two goods and services whose consumption provides the same level of satisfaction.

The indifference curves have three properties: the slope of the indifference curves is negative, the indifference curves do not intersect, and the marginal rate of substitution is decreasing along the indifference curve.

Due to the decrease in the marginal rate of substitution, the indifference curves are convex. (We say that a curve is convex if it is in the form of an arc of the outer circle. If a segment is drawn from two points on this curve and that this segment is above this curve, then the curve is convex. curve therefore has a convex curvature in “U”)

Marginal rate of substitution

In economics, the marginal rate of substitution (MRS) measures the change in the quantity consumed of a good Y which is needed, along a curve of indifference, to compensate for an infinitesimal change in the quantity consumed of a good X. The marginal rate of substitution calculates how we replace a product margin by another. If the marginal rate of substitution remains the same, the goods are perfect substitutes (simplified example of oil and natural gas). If you want a little more of the product y (y-axis) must abandon many of product x (x-axis).