Enter the marginal utility of two different products or goods into the calculator to determine the marginal rate of substitution.
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- Expected Utility Calculator
Marginal Rate of Substitution Formula
The following equation is used to calculate a marginal rate of substitution.
MRS = MUx / MUy
- Where MRS is the marginal rate of substitution
- MUx is the marginal utility of good x
- MUy is the marginal utility of good y
Marginal Rate of Substitution Definition
A marginal rate of substitution is a measure of the amount of a product that a consumer is willing to purchase or consume based on the consumption of another produce.
Marginal Rate of Substitution Example
How to calculate marginal rate of substitution?
- First, determine the marginal utility of good X.
Calculate or determine the marginal utility of the first product or good. If you are unsure, navigate to the marginal utility calculator linked above.
- Next, determine the marginal utility of good Y.
Just as in step 1, determine the marginal utility of the other product.
- Finally, calculate the MRS.
Calculate the marginal rate of substitution by using the formula MUx/MUy.
FAQ
A marginal rate of substitution is a measure of the amount of a product a consumer is willing to purchase or consume, with respect to another product. It’s essentially measuring the effect the consumption of one good has on the consumption of a separate but related good.
The greatest limitation is that the MRS can only be used to compare two goods at a time.
