Question

for a consumer to be in equilibrium position ,marginal rate of substitution between the two goods must be equal to ratio of price of the two goods.do yo agree with the given statement? justify your answer .​

Answer 1

Answer:

MRS (marginal rate of substitution) must be equal to Px/Py.  As at this point, the rate at which the consumer is willing to substitute goods x for goods y (slope of IC Curve) that coincides with the rate at which market permits the consumer to substitute good x for good y(Slope of Budget line). Moreover IC Curve must be concave.

Explanation:

Answer 2

Answer:

Explanation:

For a consumer to be in equilibrium :

Marginal utility of good a / price a = marginal utility of good b/price b

MUa / Pa = MUb/Pb

We can make the prices the subject of the equation as follows :

Price a/Price b = marginal utility of a/ marginal utility of b

Pa /Pb = MUa/MUb

We see that the ratios are equal.

We therefore conclude that the ratio of the marginal rate of substitution of the two goods equal to the ratio of the prices of the two goods.

I therefore conclude that the statement is true.