Relationship between Relative Scarcity and the Marginal Rate of Substitution
The marginal rate of substitution (MRS) at any given point on an indifference curve reflects the relative scarcity of the two goods. When a good is scarce relative to another, such as having low present consumption compared to high future consumption, an individual places a higher value on an additional unit of it. This higher valuation means they are willing to trade a larger quantity of the abundant good for the scarce one, resulting in a high MRS and a steep indifference curve at that point. As the individual moves along the curve and the initially scarce good becomes more plentiful, the MRS diminishes and the curve flattens.
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