74 PART • Producers, Consumers, and Competitive Markets A Clothing 16 (units per week) 14 –6 12 B 10 F IGURE 3.5 THE MARGINAL RATE OF SUBSTITUTION –4 The magnitude of the slope of an indifference curve measures the consumer’s marginal rate of substitution (MRS) between two goods In this figure, the MRS between clothing (C) and food (F) falls from (between A and B) to (between B and D) to (between D and E ) to (between E and G) When the MRS diminishes along an indifference curve, the curve is convex D –2 E G –1 2 Food (units per week) food; in moving from D to E, he will give up only units of clothing for unit of food The more clothing and the less food a person consumes, the more clothing he will give up in order to obtain more food Similarly, the more food that a person possesses, the less clothing he will give up for more food The Marginal Rate of Substitution • marginal rate of substitution (MRS) Maximum amount of a good that a consumer is willing to give up in order to obtain one additional unit of another good To quantify the amount of one good that a consumer will give up to obtain more of another, we use a measure called the marginal rate of substitution (MRS) The MRS of food F for clothing C is the maximum amount of clothing that a person is willing to give up to obtain one additional unit of food Suppose, for example, the MRS is This means that the consumer will give up units of clothing to obtain additional unit of food If the MRS is 1/2, the consumer is willing to give up only 1/2 unit of clothing Thus, the MRS measures the value that the individual places on extra unit of a good in terms of another Look again at Figure 3.5 Note that clothing appears on the vertical axis and food on the horizontal axis When we describe the MRS, we must be clear about which good we are giving up and which we are getting more of To be consistent throughout the book, we will define the MRS in terms of the amount of the good on the vertical axis that the consumer is willing to give up in order to obtain extra unit of the good on the horizontal axis Thus, in Figure 3.5 the MRS refers to the amount of clothing that the consumer is willing to give up to obtain an additional unit of food If we denote the change in clothing by ⌬C and the change in food by ⌬F, the MRS can be written as - ⌬C/⌬F We add the negative sign to make the marginal rate of substitution a positive number (Remember that ⌬C is always negative; the consumer gives up clothing to obtain additional food.)