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.
Answer (1)
16th Jan, 2024
Correct Answer: The ratio of prices.
Solution :
The correct answer is (d) The ratio of prices.
The MRS represents the rate at which a consumer is willing to exchange one good for another while maintaining the same level of satisfaction. In equilibrium, this rate of substitution should be equal to the price ratio of the goods, as the consumer seeks to allocate their budget efficiently.
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