Law of Diminishing Marginal Rate of Substitution
The marginal rate of substitution is the rate at which one commodity can be substituted with another commodity while maintaining the same level of the same indifference curve.
In the above table, there are five combinations of the commodity. In the first combination, A consists of 1 unit of x and 12 units of y. The consumer gives up 4 units of commodity y in order to add 1 unit of commodity x. Hence, when the consumer moves from A to B, the marginal rate of substitution is 4. Combination B consists of 8 units of y and 2 units of x. Combination C consists of 5 units of y and 3 units of x. Combination D consists of 3 units of y and 4 units of x. Lastly, combination E consists of 1 unit of y and 5 units of y. The consumers give up 3 units while moving from combination B to C, 2 units from C to D, and 1 unit from D to E.
