Question

Why should marginal rate of subsititution diminish for a stable consumer’s equilibrium?

Answer 1

for equilibrium to be stable at any point on an indifference curve, the marginal rate of substitution between any two goods must be diminishing and be equal to their price ratio i.e. MRS' = Px/Py Therefore, the indifference curve must be convex to the origin at the point of tangency with the budget line.

Answer 2

As there is increase in the margin of profit of the sellers of products, there are many costs added to the products value, in turn increasing the overall cost of the product. Consumer's equilibrium means, that there should be satisfaction of the consumer, on the product he or she purchased with his earned money.

In order to maintain the consumer's equilibrium, there have to be a fall in the marginal profit amount.