Table6A-1 Hugh’s Marginal Rate of Substitution Between Clothing
and Food
Diminishing MRS is the second basic assumption of indifference theory.The hypothesis of diminishing marginal rate of substitution is illustrated
in Table 6A-1 , which is based on the example in Figure 6A-1. The last
column of the table shows the rate at which Hugh is prepared to sacrifice
units of clothing per unit of food obtained. At first, Hugh will sacrifice 2.4
units of clothing to get 1 unit more of food, but as his consumption of
clothing diminishes and his consumption of food increases, Hugh
becomes less and less willing to sacrifice further clothing for more food.
The marginal rate of substitution of clothing for food declines (in
absolute value) as the quantity of food increases. This table is based on
Figure 6A-1. When Hugh moves from a to b, he gives up 12 units of
clothing and gains 5 units of food; he remains at the same level of overall
utility. At point a, Hugh is prepared to sacrifice 12 units of clothing for 5
units of food (i.e., units of clothing per unit of food obtained).
When he moves from b to c, he sacrifices 5 units of clothing for 5 units of
food (a rate of substitution of 1 unit of clothing for each unit of food).
12 / 5 =2.4