MRS, MRT and MRTS
Answer 1
Both describe the relationship between two goods in terms of how many units of one is equivalent to one unit of the other. However,
marginal rate of transformation focuses on supply and the marginal rate of substitution focuses on demand.
The marginal rate of transformation tells you how many more units of X you could produce if you produce one less unit of Y, i.e.
the opportunity cost of producing one in terms of the other. If making one less Ferrari frees up enough resources to make five Toyota
Prius, the rate of transformation is five to one at the margin. The rate of transformation may change as the number of units of X
to Y changes, and the line plotting these values is called the transformation curve.
The marginal rate of substitution tells you how many units of X which a given consumer, or group of consumers, would consider to be
compensation for one less unit of Y. For instance, a consumer who prefers Coca Cola may be equally happy if offered two cans of
instead. A line joining all points on a chart showing those quantities of X and Y considered by the consumer to provide equivalent
is called an indifference curve.
Answer 2
The steepness of the line at any particular point on the two graphs above indicates the marginal rate of transformation and the marginal
rate of substitution respectively. Point AA on the transformation curve indicates a different marginal rate of transformation than at
point BB.

Marginal rate of substitution (MRS)
o
It is the rate at which a consumer is willing to trade one good for another to maintain a constant level of utility.
o
It is the slope of an indifference curve.
o
MRS falls as we move down the indifference curve implying that consumer willingness to give up more units of a
good declines as more and more of another good is consumed.
o

It focuses on demand side of the consumer theory .
Marginal rate of transformation (MRT)
o
It is the amount of one good that must be given up to produce an additional unit of another good.
o
It is the slope of Production Possibility Frontier (PPF).
o
MRT increases as we move down the PPF implying that as the production of one good increases, the opportunity
cost of producing that good increases too.
o

o
It focuses on supply side of a commodity.
Marginal rate of technical substitution (MRTS)
It is the amount by which the quantity of one input has to be reduced when an extra unit of another input is used,
so that output remains constant.
o
It is the slope of an isoquant.
o
It diminishes as we move down the isoquant curve i.e. as more and more of one input is increased, producer is
willing to substitute less and less of other input for any increase in usage of that input.
o
It focuses on production side of economic theory.