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What is the marginal rate of substitution?

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The marginal rate of substitution measures the rate at which a consumer exchanges an amount of one good for another good as long as the new good satisfies the consumer's needs. The marginal rate of substitution is used to analyze consumer behavior in indifference theory.

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What is the marginal rate of substitution?
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Full Answer

The marginal rate of substitution examines how many of what item must be provided to exchange for the new item. For example, if a consumer were asked to eat pizza slices instead of salads, the marginal rate of substitution shows how many slices of pizza provided would convince the consumer to give up the salads.

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