Final answer:
The marginal rate of substitution (MRS) measures the rate a consumer is willing to trade one good for another while maintaining the same utility level and is calculated by the formula MRS = - (ΔY/ΔX) or can be expressed as the ratio of the marginal utility of two goods.
Step-by-step explanation:
The marginal rate of substitution (MRS) is a concept from microeconomics that measures the rate at which a consumer can give up some amount of one good in exchange for another good while maintaining the same level of utility. The formula to calculate the marginal rate of substitution is MRS = - (ΔY/ΔX), where ΔY represents the change in the quantity of good Y, and ΔX represents the change in the quantity of good X. The 'minus' sign indicates that there is an inverse relationship between the two goods. When we are dealing with marginal utility, the MRS can also be expressed as the ratio of the marginal utility of X to the marginal utility of Y (MRS = MUx/MUy).
For example, if a consumer is willing to give up 2 units of good Y to gain 1 additional unit of good X, the MRS would be calculated as - (ΔY/ΔX) = - (2/1) = -2. The marginal rate of substitution is an important concept in the context of a market economy, as it helps determine consumer behavior and how a change in the relative prices of goods might affect consumption choices.