MRS Economics

It is related to the indifferent analysis, where the study tries to identify the possible basket of goods or services which will yield the same utility (usefulness or satisfaction) to consumers.

There are certain basic assumptions made in this regard like the consumer is logically knowledgeable, there is no time gap between the consumption, goods are of equal size and shape, there is no change in income, taste, preference,

And fashion, the utility is a cardinal, and the marginal unit of cash is assumed to be a constant. It is assumed that the individuals faced with budget constraints will select the basket that can maximize the total utility and act rationally at the time of budget allocation. 

The analysis is based on completeness (consumer prefers to buy one type of item compared to others), and their decision can be based on transitivity, consistency, and multiple preferences. 

The marginal rate of substitution is represented by the slope of the indifference curve. There can be three types of curves – the first is used for defining the utility of consumption for a given economic agent.

The second has two comparable goods, and the curve shows parallel lines, where MRS =1. The slope angle can be at 45 degrees with each axis. 

The third graph represents complementary goods where the value of MRS for the horizontal fragment is 0 and for the vertical is infinite. 

It is assumed that utility is cardinal, the consumer is rational and goods consumed are substitutable. The basic feature of the curve is that it is a negative slope, forms a convex and lies to the right of another and may yield more.

The law of MRS does not apply for different units, limited quantities, unsuitable periods, rare collector's items /antiques like coins and stamps, and changes in fashion trends, habits, and income/consumer taste.