GK
BUSINESS ECONOMICS
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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As per indifference curve and price line, a consumer will not be in equilibrium when
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The marginal rate of substitution is decreasing
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Ratios of marginal utilities and price of the respective goods are equal
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The marginal rate of substitution is equal to the ratio of prices of the two goods
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Ratio of marginal utilities of the two goods is equal to the ratio of their respective prices
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Explanation:
Detailed explanation-1: -A consumer is in equilibrium when he derives maximum satisfaction from the goods and is in no position to rearrange his purchases.
Detailed explanation-2: -Normal goods are goods for which consumption falls (rises) when income increases (decreases). The consumer is at equilibrium when the marginal rate of substitution is equal to the slope of the budget line.
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