Economics, 3rd Edition

marginal rate of substitution

 (MRS) between two goods 

depends on their marginal utilities. In this case, the marginal rate of substitution measures how much 

cola the consumer requires in order to be compensated for a one-unit reduction in pizza consumption. 

For example, if the marginal utility of cola is twice the marginal utility of pizza, then a person would need  

2 units of pizza to compensate for losing 1 unit of cola, and the marginal rate of substitution equals –2. 

More generally, the marginal rate of substitution (and thus the negative of the slope of the indifference 

curve) equals the  marginal utility of one good divided by the marginal utility of the other good a

MU

 

x

Mu

 

y

b.