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Substitution Marginal Rate and Its Usage in the Marginal Preference Calculation

Substitution Marginal Rate and Its Usage in the Marginal Preference Calculation
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摘要 The slope of indifference curve is known as a marginal rate of substitution (MRS). MRS defining ratio always describes slope of indifferent curve, i.e. MRS matches the module of indifferent curves slope. Utility function U(Xl,X2) is used to calculate marginal rate of substitution (MRS), because MRS gives the slope of appropriate indifference curve, it can be interpreted as a norm, in which costumer is ready to substitute good 1 by small amount of good 2. The word "marginal" in economic means "differential". Here we have partial differentiation, because in time of calculation of good l's marginal utility the amount of good 2 remains the same. We can calculate MRS in two ways using differential and function. In the first case consider change (akl,ak2) during which utility is unchanged. For the second method let the curve of indifference present by x2 (X1) function. The function shows how many of x2 is needed for each unit of xl to stay on this concrete curve of indifference. We obtain two equations for the term of MRS and budget constraint and two xl and x2 variables. To define the optimal choice of x1 and x2 as a function of the price and income, we need to solve those two equations. The problem of maximization can be solved by using differential.
机构地区 Associate professor
出处 《Journal of Mathematics and System Science》 2014年第12期781-785,共5页 数学和系统科学(英文版)
关键词 Marginal rate of substitution problem of maximization indifference curve 计算 税率 无差异曲线 曲线斜率 用法 偏好 效用函数 MRS
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参考文献2

  • 1Hall R. Varian, Intermediate Microeconomics. W. W. Norton & Company. 1993. 被引量:1
  • 2Eugene F. Fama, Merton H. Miller. The Theory of Finance, Dryden Press, 1971. 被引量:1

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