Law of Diminishing Marginal Rate of Substitution (6)
It is clear the diagram that when consumer moves from point A to point
B, he give up 3 oranges to obtain one additional apple. In this situation,
consumer’s marginal rate of substitution of apple for orange is 3: 1. When he moves from B to C, he gives up only 2 oranges to get one additional apple. The marginal rate of substitution of apple for orange now diminishes to 2: 1. It is evident from this example that as the consumer increases the consumption of apples, for getting every additional unit of apple he gives up less and less units of oranges, that is, 3: 1, 2: 1, 1: I respectively. It is called diminishing marginal rate of substitution and the law relating it is called law of diminishing marginal rate of substitution.