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Questions
Give the difference between Marginal Rate of Substitution and Diminishing Marginal Utility.
Point out the difference between MRS and diminishing marginal utility.
Short Answer
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Solution
- 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.
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Notes
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