ECONOMICS
CONSUMERS
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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minimum
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Maximum
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zero
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one
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Detailed explanation-1: -if MRS > Px/Py, the consumer will consume more x and less y. If MRS < Px/Py, the consumer will consume less x and more y. If MRS = Px/Py, the consumer will not change their consumption. Recall that MRS is the slope of the indifference curve, and Px/Py is the slope of the budget line.
Detailed explanation-2: -When MRS is greater than the price ratio, it means that the consumer is getting more satisfaction from consuming good x as compared to good y. So, the consumer starts consuming more of good y and less of good x.
Detailed explanation-3: -At the point of tangency, the marginal rate of substitution (MRS) between the two goods is equal to the ratio of prices of the two goods. This means that the rate at which the consumer is willing to exchange one good for another equals the rate at which the goods can be exchanged in the market.
Detailed explanation-4: -Higher indifference curve represents higher level of satisfaction to the consumer.