Marginal Rate of Substitution. What is the marginal rate of substitution (MRS) and why does it diminish as the consumer substitutes one product for another? Use examples to illustrate Demand Elasticity. Please read the article Hainer R. (2010) provided in the required readings section for this week. The tobacco industry is a prime example to consider when talking about price elasticity of demand. While nicotine use can be addictive for many users it is not addictive for the so-called social smokers. What can we say about the price elasticity of demand for nicotine products (such as cigarettes pipes tobacco) in the group of nicotine addicted users versus the group of social smokers? Can we say whose demand is likely to be more elastic? Why?