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marginal rate of substitution


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The additional amount of one good required to compensate a consumer for a small decrease in the quantity of another, per unit of the decrease. The marginal rate of substitution at a particular level of consumption is given by the negative of the gradient of the indifference curve. This is the ratio of the marginal utilities for the two goods, so the marginal rate of substitution between goods x and y is

Subjects: Economics.


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