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According to Douglas (2012), Marginal of substitution is the amount of product Y that the consumer will be willing to give up for one more unit of product x while remaining at the same level of total utility. It is important to understand that for it to be marginal rate of substitution, it has to be substituted but be equally as satisfying. An example for me is candy. I love candy and my favorite is gummy bears.  Sometimes, however, when I go into a store they may not have gummy bears. So in that moment I have to substitute it for something else that is equally as satisfying, usually is starbursts or Twizzlers.  I walk out being as satisfied as I would have with gummy bears but it was substituted out. 

 However, when it comes to substituting, it is also important to understand taht it will diminish as the consumer starts to substitute it too many times.  It states that as more and more of a good(s) is consumed, then consuming addition amounts will yield less (Hayes, 2019). This comes into play with the gummy bears and starburst.  The more starbursts I have compared to gummy bears, the the less gummy bears I am willing to give up to obtain more gummy bears.  You think have to take into consideration how much money you have versus how much they cost. I think it is important to understand that it can be more difficult to give up the thing you REALLY want for something that has a little less value to you. 

 This comes into play in businesses all the time.  I remember when i was a manager at a restaurant.  Sometimes we would run out of  a product, lets say the chicken tenders.  We would have to determine if we were okay with substituting.  The chicken tenders may have cost $50 a box where the chicken fingers are $75 a box.  This means that for every three boxs of chicken tenders I could buy, I can now only buy two boxes of chicken fingers.  This is a prime example of diminishing MRS in companies. They have to determine what they are going to spend on their product budget so when substitutions occur, while they may be similar in like, kind and quality, they may cost more, thus taking more of that budget. 
 

References: 
Douglas, E. (2012). Managerial Economics (1st ed.) [Electronic version]. Retrieved from https://content.ashford.edu/
Hayes, A. (2019, September 14). Inside the Marginal Rate of Substitution. Retrieved from https://www.investopedia.com/terms/m/marginal_rate_substitution.asp.
 

 

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 What is the Marginal Rate of Substitution (MRS) and Why does it diminish as the Consumer Substitutes one product for another?
The Marginal Rate of Substitution or MRS is "the amount of product Y that the consumer will be willing to give up for one more unit of product X while remaining at the same level of total utility" (Douglas, E., 2012).

 Consumers make decisions to buy products based on the expectations that they purchase will allow them to gain the most psychic satisfaction or utility from their limited income according to the utility-maximizing model of consumer behavior (Douglas, E., 2012).

 The marginal rate of substitution I see as a form of budgeting. consumers with limited income budget most everything to ensure they are getting the most out of the income they have after the main expenses are taken care of. After expenses are paid if there is limited income left and a consumer needs other items, they must make the decision on what do decrease in order to increase the needed items. If a consumer has 1 gallon of milk(X) in their basket at $3.49 a gallon,  and 4 bag of cereal at $1.74(Y) but wants to get 1  more gallon of milk (X),  the consumer will have to decrease the cereal (Y)by 2 in order to be able to get the extra gallon of milk 2/1.  Diminishing marginal utility happens because the consumer is consuming more of product x and less of product Y however the total utility does not change, therefore to remain at the "same level of total utility the amount of product Y must be decreasing and the amount of product x must be increasing" causing indifference curve to be convex .

 Douglas, E. (2012). Managerial Economics (1st ed.) [Electronic version]. Retrieved from https://content.ashford.edu/

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