what the mrs can tell you
the mrs is a term used in economics that refers to the amount of one good that is substitutable for another and is used to analyze consumer behaviors for a variety of purposes mrs is calculated between two goods placed on an indifference curve displaying a frontier of utility for each combination of good x and good y the slope of this curve represents quantities of good x and good y that a consumer would be happy substituting for one another mrs is a critical component for businesses to understand when analyzing consumption trends or for government entities to understand when setting public policy consider an example of a government wanting to analyze how offering electric vehicle incentives may spur more environmentally friendly purchases understanding how mrs is impacted before and after a tax incentive can allow for the government to analyze the financial implications of the plan mrs and the indifference curvethe slope of the indifference curve is critical to the mrs analysis mrs is the slope of the indifference curve at any single point along the curve the slope will often be different as one moves along an indifference curve most indifference curves are usually convex because as you consume more of one good you will consume less of the other indifference curves can be straight lines if a slope is constant resulting in an indifference curve represented by a downward sloping straight line if the mrs is increasing the indifference curve will be concave to the origin this is typically not common since it means a consumer would consume more of x for the increased consumption of y and vice versa usually marginal substitution is diminishing meaning a consumer chooses the substitute in place of another good rather than simultaneously consuming more the law of diminishing marginal rates of substitution states that mrs decreases as one moves down a standard convex shaped curve which is the indifference curve example of mrsfor example a consumer must choose between hamburgers and hot dogs to determine the mrs the consumer is asked what combinations of hamburgers and hot dogs provide the same level of satisfaction 