Substitution Replacement rate Diminishing displacement rate

## Substitution Replacement rate Diminishing Displacement Rate

**Substitution**: – **The consumer reduces the quantity of another item to increase the quantity of one item. To increase the quantity of one item by the consumer in this way one has to reduce the quantity of the other item, because the income of the consumer is limited.**

**Therefore, increasing the quantity of one object by decreasing the quantity of one object is called substitution.**

**Example: If a person wants to increase the amount of coffee from tea and coffee, then he has to decrease the quantity of tea. Increasing the quantity of coffee by reducing the quantity of tea is called substitution.**

*** Rate of Substitution: – In order to increase one unit quantity of an object, the quantity of the other item has to be discarded, the same is called its rate of substitution.**

**To increase the quantity of item one, one has to decrease in two. The rate of substitution is the ratio of changes in quantities of both goods.**

**Express it in the mathematical formula as follows: – Rate of substitution = change in quantity of object – 1 / change in quantity of object – 2.**

**Example: – To increase one unit of quantity of item 1, if 5 units of item 2 have to be discarded, the rate of substitution will be 5/1 = 5.**

*** Displacement rate: – Displacement of certain quantities of object 2 for additional units of object 1 is called displacement.**

**The quantity of object one that is discarded for each quantity is not always the same but the quantity of two is always decreasing in each phase of substitution. This decreasing rate of substitution is called the ‘rate of displacement’.**

**Q Why is the displacement rate low?**

**At each stage of displacement, the quantity of object 1 increases compared to the former, which reduces the consumer’s intensity of acquiring object 1, and in each phase the quantity of item-2 decreases compared to the prior, making object-2 There is also a decrease in readiness to abandon. The resulting substitution rate decreases at each step, which is called the ‘rate of displacement’.**

**Note: – In addition to the high displacement rate, it is also called the ‘decreasing marginal rate’, and such preferential is also known as the ‘substandard preference’.**

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