Any points above the curve show combinations of food and clothing that
Hugh prefers to points on the curve. Consider, for example, the
combination of 20 units of food and 18 units of clothing, represented by
point g in Figure 6A-1. Although it may not be obvious that this bundle
must be preferred to bundle a (which has more clothing but less food), it
is obvious that it will be preferred to bundle c because both less clothing
and less food are represented at c than at g. Inspection of the graph shows
that any point above the curve will be superior to some points on the
curve in the sense that it will contain both more food and more clothing
than those points on the curve. However, because all points on the curve
are equal in Hugh’s eyes, any point above the curve must be superior to
all points on the curve. By a similar argument, all points below and to the
left of the curve represent bundles that are inferior to bundles
represented by points on the curve.
Any point above an indifference curve is preferred to any point along that same indifference
curve; any point on the curve is preferred to any point below it.Diminishing Marginal Rate of Substitution
How much clothing would Hugh be willing to give up to get one more
unit of food but to keep his utility unchanged? The answer to this
question measures what is called Hugh’s marginal rate of substitution of
clothing for food. The marginal rate of substitution (MRS) is the amount
of one product that a consumer is willing to give up to get one more unit
of another product and remain indifferent.