Marginal rate of Technical substitution ( MRTS)

It is the rate at which a factor of production can be substituted for another at the margin without affecting any change in the quantity of output is known as the marginal rate of technical substitution (MRTS).

If there are two factors X and Y, then the quantity of Y for which one unit of X is a substitute, if the output remains unchanged.

Autonomous investment VS Induced investment.

Autonomous investment

It is an investment which is independent of the general economic situations. It is income inelastic. 

Induced Investment

It is an investment which is dependent on the general economic situations in the country, like general price level, national income, national consumption etc. It is income elastic.

Marginal rate of substitution

What is marginal rate of substitution?

 The indifference curve analysis is based on the principle of marginal rate of substitution.

 

It is the rate at which an individual will exchange successive units of one commodity for another.

For example, if a consumer has more of apples than oranges, then he will be willing to give more of oranges for an extra unit of 

apple.

It is the ratio between the marginal utilities of two commodities, which guides the consumer's choice.