Question : A consumer will not be in equilibrium when according to the indifference curve and price line.
Option 1: The price of retroactive items and the marginal utility ratio is the same.
Option 2: The ratio of marginal utilities of the two goods is equal to the ratio of their respective prices.
Option 3: The prices of the two items are equal, as is the marginal rate of substitution.
Option 4: Substitution's marginal rate is declining.
Correct Answer: Substitution's marginal rate is declining.
Solution :
The consumer’s equilibrium under the indifference curve:
(i) MRSXY = Ratio of prices or PX/PY.
(ii) Marginal rate of substitution is equal to the prices of the two goods.
(iii) The price of retroactive items and the marginal utility ratio is the same.
Hence d is not correct answer.
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