Question

A consumer chooses an optimal consumption point where the

a. marginal rate of substitution equals the negative of the relative price ratio.
b. slope of the indifference curve equals the slope of the budget constraint.
c. ratio of the marginal utilities equals the ratio of the prices.
d. All of the above are correct.

Answer 1

Option (D) is correct.

Step-by-step explanation:

A consumer of a certain goods in an economy wants to maximize his satisfaction that is obtained from the consumption of goods. There are three conditions which represents the optimal consumption point for the individuals are as follows:

(i)
`MRS=-((P_(A) )/(P_(B) ))`

(ii) At this point, the indifference curve is tangent to the budget line. This shows that the slope of the indifference curve is equal to the slope of the budget line.

(iii)
`(MU_(A) )/(MU_(B) )=(P_(A) )/(P_(B))`