Question

The consumer will be in equilibrium where there is tangency between price line and indifference curve because at this point ______.

Options

• MRS < Price Ratio

• MRS > Price Ratio

• MRS = Price Ratio

• None of these

Answer 1

The consumer will be in equilibrium where there is tangency between price line and indifference curve because at this point MRS = Price Ratio.

Explanation:

At tangency, the absolute slopes of the indifference curve and budget line are equal. That means MRS equals the price ratio.