91Ó°ÊÓ

The law of equi-marginal utility states that a consumer should spend his limited income on different commodities. The last rupee spent on each commodity yields him an equal marginal utility to get maximum satisfaction.

Marginal rate of substitution for consumers in Georgia:

$$\begin{gathered} \frac{M{U}_{av}}{P_{av}}=\frac{M{U}_{pe}}{P_{pe}} \\ \frac{M{U}_{pe}}{M{U}_{av}}=\frac{P_{pe}}{P_{av}} \\ MR{S}_{av.pe}=\frac{1}{2}=0.5 \end{gathered}$$

Marginal rate of Substitution for consumers in California:

$$\begin{gathered} \frac{M{U}_{av}}{P_{av}}=\frac{M{U}_{pe}}{P_{pe}} \\ \frac{M{U}_{av}}{M{U}_{pe}}=\frac{P_{av}}{P_{pe}} \\ MR{S}_{av.pe}=1 \end{gathered}$$

MRS is used to show the quantity of good Y and good X, which are substitutable for one another. It includes bounded rationality in which consumers make purchasing decisions to satisfy their needs rather than achieve an optimal solution. It is related to the indifference curve.

From the computations above, it is evident that if consumers in both states maximize utility, the marginal rate of substitution of peaches for avocados in California is higher than in Georgia.