Question : If a consumer is in equilibrium, the consumer's marginal rate of substitution (MRS) must be equal to:
Option 1: The price of X.
Option 2: The price of Y.
Option 3: The ratio of marginal utilities.
Option 4: The ratio of prices.
Correct Answer: The ratio of prices.
Solution : The correct answer is (d) The ratio of prices.
If a consumer is in equilibrium, the consumer's marginal rate of substitution (MRS) must be equal to the ratio of prices (the price of X divided by the price of Y).
The MRS represents the rate at which a consumer is willing to substitute one good for another to maintain the same level of utility. In equilibrium, the consumer optimizes their utility subject to their budget constraint. This occurs when the MRS is equal to the ratio of prices, as it reflects the relative value the consumer places on the two goods in terms of their prices.
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