I'm having some confusion with using the terminology of MRS. For example, let's take up this question:

If good 1 is a “neutral,” what is its marginal rate of substitution for good 2?

The answer is:

Zero—if you take away some of good 1, the consumer needs zero units of good 2 to compensate him for his loss.

The question is asking for the MRS of good 2. The answer interprets this question as "how much of good 2 will one need to give up for a loss in good 1?". In that case, it is, of course, 0. But, you can just as easily interpret the question as: "How much of good 1 will one need to give up for a loss in good 2?" -- in which case, the answer is infinity -- the consumer would not want to give up any amount of good 1 for a loss in good 2.

In a different question, this was asked: "What is your marginal rate of substitution of \$1 bills for \$5 bills?". And the answer was "5". So, in this question, the good after the word "of" (\$1 bills) is what you're giving up. In other words, the answer is the answer to the question: "How many \$1 bills would you give up for a \$5 bill?" So this answer interprets the question in completely the opposite way.

To phrase it more clearly, when someone asks:

What is the MRS of good 1 for good 2?

How should I interpret it? Is it "how much good 2 you would give up for an increase in good 1?" or "How much good 1 you would give up for an increase in good 2?"


2 Answers 2


It is your second answer. From MWG:

$$\frac{\partial u(x^*)/\partial x_\ell}{\partial u(x^*)/\partial_k}=\frac{p_\ell}{p_k}\tag{3.D.5}$$ The expression on the left of $\text{(3.D.5)}$ is the marginal rate of substitution of good $\ell$ for good $k$ at $x^*$, $MRS_{\ell k}(x^*)$; it tells us the amount of good $k$ that the consumer must be given to compensate her for a one-unit marginal reduction in her consumption of good $\ell$.

  • 1
    $\begingroup$ In the future, please try to post texts as texts to enhance searchability. Images of texts may not get picked up by search engines as easily as texts. $\endgroup$
    – Herr K.
    Commented Apr 8, 2019 at 19:50

MRS of good1 for good2 is the rate at which you will substitute good 1 for good 2, hence it is CHANGE IN X1/CHANGE IN X2

and similarly

MRS of good 2 for good 1 is the rate at which you will substitute good 2 for good 1, i.e. CHANGE IN X2/CHANGE IN X1


Your Answer

By clicking “Post Your Answer”, you agree to our terms of service and acknowledge you have read our privacy policy.

Not the answer you're looking for? Browse other questions tagged or ask your own question.