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The shapes of indifference curves describe how a consumer is willing to substitute one good for another

In the Graph above:

• A to B, gives 6 clothing to get 1 food
• D to E, gives 2 clothing to get 1 food
• The more clothing and less food a person has, so the more clothing they will give up to get more food.

## Marginal Rate of Substitution

We measure how a person trades one good for another using the Marginal rate of substitution (MRS).

Marginal Rate of Substitution provides or quantifies the amount of one good a consumer will forgo to obtain more of another good.

It is measured by the help of slope of the indifference curve.

## Convexity of Indifference Curve

As we have already discussed. Indifference curves are convex . But why ?

As more of one good is consumed, a consumer would prefer to give up fewer units of a second good so as to get extra or additional units of the first good.

Consumers generally prefer a balanced market basket. As you would not want to give up all of one good and get the second one or vice versa.

## Diminishing Marginal Rate of Substitution

As it is discussed above that you would gradually prefer giving up less and less units of the second good. So :

The MRS decreases as we move down towards the indifference curve. So going along an indifference curve there is a diminishing marginal rate of substitution.

in the Graph above we can see that the MRS went from 6 to 4 to 1.

## Two Polar Cases

Indifference curves with different shapes imply a different willingness to substitute. Two polar cases are of interest

• Perfect substitutes
• Perfect complements

### Perfect Substitutes

Two goods are perfect substitutes when the marginal rate of substitution of one good is completely constant for the second good.

Example: a person might consider apple juice and orange juice perfect substitutes.They would always trade 1 glass of Orange Juice for 1 glass of Apple Juice.

### Perfect Complements

Two goods are perfect complements when the indifference curves for the goods are in the form of right angles.

Example: If you have 1 left shoe and 1 right shoe, you are indifferent between having more left shoes only (So you must have one right for one left)

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