Marginal Rate of Substitution

The Marginal Rate of Substitution (MRS) measures how much of one good a person is willing to give up to get an additional unit of another good while still maintaining the same level of satisfaction. It reflects preferences and trade-offs between two items. For example, if someone is willing to exchange a certain amount of coffee for a little more tea without feeling happier or sadder, the MRS captures how much tea they value compared to coffee at that point. As preferences shift, the MRS changes, revealing the individual's willingness to substitute between goods.