6. Marginal Rate of Substitution and Marginal Utility

In this video, I explain the concepts of Marginal Rate of Substitution (MRS) and Marginal Utility. I then offer a non-calculus-based motivation for the formula that relates the MRS to the marginal utilities of the two goods.


Check out a description of my teaching activities here:

www.tonycookson.com/teaching

Check out a list of the videos in this series (organized by topic) here:

http://blog.thisyoungeconomist.com/p/learn-microeconomics.html

Category:

Education

Tags:

• Marginal Rate of Substitution
• marginal utility
• economics lecture
• tutorial
• educational
• microeconomics

[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.

[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.

[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.

[eastblood8888]

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

[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.

[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.

[mkarun99]

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

[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?

[jessicafan112233]

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