6. Marginal Rate of Substitution and Marginal Utility

[webesofunny]

Thank you! That helped me a lot!!

[KarabRules]

Can you please help me with this problem which ask me to find the utility function of x1+2x2. It asks me to find MP1(x1,x2), MP2(x1,x2) and MRTS. Do I differentiate with respect to x1 to find MP1(x1,x2) and do the same thing for MP2(x1,x2) and then find the MRTS or do I differentiate with respect to x1x2 to find MP1(x1,x2) and MP2(x1,x2).

[xoxopurplediamonds]

Thank you so much for this video! It really helped me understand :)

[guptasahil43]

sir can you please tell me that what is the marginal rate of substitution on good 2 when good 1 is neutral....?????/

[keller43561]

hey...just wanna say thank you...wudnt of grasped this concept otherwise...like seriously thanks

[bddaawwgg]

I took a class on intro economics which was very confusing. I started to hate economics, but gave it a second go. Now I love every minute of it. I can't get enough of it.

I have to say you explain these concepts very clearly. Every time I watch any of your videos, I'm reminded why I want to study economics. I just purchased the book and look forward to receiving it so I can increase my intake of microeconomics.

[jessicafan112233]

haha i take econ at NYU and this is more clear than my Nyu Stern professors

[maitaiaddict225]

hi your videos are great! I was a little confused at how you got the slope for the equation 0=MUtaste+slope*MUhealth.

[maitaiaddict225]

@maitaiaddict225 to be more specific, how did u get the slope from going to point B to C to D

[RockaRolla74]

I'm a little confused about where the "U=10" and "U=12" came from. I'm working on a similar problem and can't figure it out.

[intromediateecon]

@RockaRolla74 U=10 and U=12 are arbitrary (and their precise number doesn't matter for the conclusions we draw, or for how MUx and MUy are related to MRS). For the economic theory of demand, all that matters for what is that 12 is bigger than 10 and that the indifference curves are shaped the way they are.

[RockaRolla74]

@intromediateecon OK, I see. Thank you. Another question, for marginal utility, are we basically just subtracting one bundle's utility from the other bundle?

[maezingwon1986]

What is the marginal rate of technical substitution? Is it the same thing?

[intromediateecon]

@maezingwon1986 Mathematically, yes. Economically, we call it MRTS to describe the tradeoff between factor inputs (and their relative marginal productivity in producing output), whereas MRS is used to describe the tradeoff between consumption goods (and their relative marginal contribution to the individual's utility). That said, the two problems are mathematically identical. It is just the context and labels that change. See my video 17 for how the two problems relate.

[mkarun99]

@intromediateecon You are doing a great job by the way. I am spending lot of time watching your economics session

[AhYaOk]

hey you sound like chris klein from american pie. lol

[JazzRoyalty]

I LOVE YOU!!! Thank you so much for letting your awesome explanations benefit anyone who needs it (that is ME ^^) u_u you saved my semester!!

Honestly I have two great books with me (Principles of Economics/ Mankiw and Microeconomics/ Pindyck-Rubinfeld) but I'm currently an exchange student in South Korea and our professor lacks pedagogy I guess or I'm just more comfortable with your way of explaining notions.

Anyway : big virtual hug thank you :D

[8701803]

You are da booossss. (my prof actually plays ur vids in class :p

[soxft123]

good lesson

[thakur1991]

thank you god for this video, extremely helpful, i was banging my head on my desk for hours trying to figure this out and you explained it in a matter of minutes

[ekr091]

I honestly cannot exaggerate the helpfulness of this video--especially in terms of relating the MRS with Marginal utility. You make my professor look like a bit of a hack.

Also, as a side note, thank you for using 'taste' and 'health'. I generally think using commodities like 'tacos' and 'pizza' is both demeaning and nauseating.

[intromediateecon]

@ekr091 Thanks for the compliment and the feedback on the choice of example.

[mkarun99]

@intromediateecon Doubt: Method 1 is rise over run. This is clear. 2 units of H foregone to get 1 unit of T. Satisfaction for 'that' consumer will be same. This movement is 'along' the IC. Method2 is to take MU formula. In this case U are keeping either H or T constant while evaluating H over T or viceversa. This moves the IC North East. For 3 units of T, your H stays at 6 (point B). But u haven't given up any H. The new position has shift the IC. Are we not comparing two different things?

[mkarun99]

@intromediateecon with regard to what i wrote above, the key doubt is that when we combine 6 Units of Health to 3 Units of Taste, are we not ignoring the fact that resources are limited and that unless the fundamentals change 6 U of H and 3 U of T cannot be attained which in effect means that there are 2 separate ICs in two different situations? If that is the case can we compare these 2 situations to arrive at the slope for the original indifference curve? Kindly clarify. Thanks.

[jacktharippares]

@ekr091 let me guess.. microeconomics with calculus- Perloff

[gunot5827]

@jacktharippares lol thats what i am using too

[jersieu03]

Ok, may be asking something that is a little not taught in there.. because of a question that has been assigned to me, hopefully you can help me out a little.. consider the equation MRS > the amount of Y that an individual would giv up for one more X... is that possible?

[jasonissober]

now I kinda learn these stuffs in german, the lectures in the uni are sucks. plus i hate the language.

[fathumptydumpty]

How would you draw an indifference curve for MRSXY < PX/PY, illustrating the position for the consumer

[tony91782]

@fathumptydumpty MRS is the steepness of the indifference curve. Px/Py is the steepness of the budget constraint. If MRS < Px/Py, that means the indifference curve is flatter than the budget constraint at that point. In other words, the two are not tangent (and the tangency would take place at a higher utility, but up and to the left)

[fathumptydumpty]

@tony91782 so would the consumer be maximising satisfaction?

[fathumptydumpty]

@fathumptydumpty and also how would you explain the theory and relationships depicted such as that of

consumer preferences, budget constraints, and the slopes of the curves according to MRSXY < PX/PY.

Thanks, i'm really struggling

[intromediateecon]

@fathumptydumpty That's what we typically assume about consumers to solve for their demand curves, but if MRS< Px/Py, the consumer is NOT maximizing satisfaction.

As a practical matter, if you computer MRS and Px/Py, and they are not equal, you know that the consumer is not maximizing utility at that bundle.

[iamheinzy]

I have a Microeconomics exam in 2 hours and this cleared up alot for me thanks!

[AndyCurtis111]

Great video, I just started my Microeconomics module at University and you help clear up a lot of confusion!

I will be checking out more of your videos in the coming weeks!! Thanks.

[nitu1312]

hello sir,

can you plz clarify ur sentence where u said we can go from A to B to C and to D, A to B is equal to MU of taste (that is OK) but how B to C is a slope (i mean slope of what and how it is a slope, why u r calling it a slope)

[intromediateecon]

Imagine drawing a line segment that connects points A and D.... In the video, I find an equation for the slope of that line segment (which approximates the slope of the indifference curve).

The slope of a straight line is rise/run. In this case, the movement from A to B is "run" (and is equal to 1). The "rise" is the movement from B to D (which equals -2). Hence, the slope is -2, and the MRS is 2.

[Convivials]

thank you very much for this xellent work...well done..!!your work helps me alot..i am a lecturer in commerce college and my next lecture was of MRS and i was confused somewhere in it..but again thx aloottt.and keep it up..!!

gud luck..!!

[eastblood8888]

you explain very good. but I confuse to one point. MRS = - MUx / MUy ,, So negative, isn't it?

[intromediateecon]

That depends on how you define MRS.

Some people (as you point out) define MRS as - MUx/MUy (a negative number). In that formulation, MRS is the slope of the indifference curve.

I find that approach confusing because the optimality condition is MRS = -Px/Py. Therefore, I define MRS as

MRS = MUx/MUy (a positive number).

This is what I do in my book (Intromediate Microeconomics). It is also what Landsburg does in his Price Theory book.

[dadee1990]

you post very good videos, keep up the good work. I'm gonna share your videos with my friends.

[intromediateecon]

Thanks! I appreciate the referrals.

[miabella84]

good video, I'm still trying to find something on the trading triange! =(