Question

4. A consumer consumes only two goods. For the consumer to be in equilibrium, why must Marginal
Rate of Substitution between the two goods must be equal to the ratio of prices of these two goods?
Is it enough to ensure equilibrium?​

Answer 1

Explanation:

MRS must be equal to Px/Py. <br> Because at this point the rate at which the consumer is willing to substitute good x for good y(slope of IC Curve) coincides with the rate at which market allows the consumer to substitute good x for good y(Slope of Budget line)