Question

Give the difference between Marginal Rate of Substitution and Diminishing Marginal Utility.

Point out the difference between MRS and diminishing marginal utility.

Answer 1

• MRS provides information on how much of one commodity a consumer must give up in order to obtain the same amount of another. When a commodity's price drops, DMU advises us to purchase more of it.
• MRS has a greater scope than DMU since it allows complementarity and substitution, whereas DMU does not.
• While MRS does not require the same assumption, DMU is predicated on a continuous marginal utility of money.