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.
In consumer equilibrium, the consumer's marginal rate of substitution (MRS) must be equal to the ratio of prices. The MRS represents the amount of one good a consumer is willing to give up to obtain an additional unit of another good while maintaining the same level of satisfaction.
The ratio of prices reflects the relative cost or trade-off between the two goods. For the consumer to be in equilibrium, the MRS should be equal to the ratio of prices, as it ensures that the consumer is allocating their budget efficiently.
