Final answer:
A consumer is in equilibrium when the budget line is tangent to the indifference curve at a chosen bundle, MRT equals MRS, and the price ratio of two goods equals the ratio of their marginal utilities. All conditions (A, B, and C) must be met for equilibrium.
Step-by-step explanation:
The consumer is in equilibrium when the budget line is tangent to the indifference curve at the bundle chosen, indicating that the consumer cannot achieve a higher level of satisfaction given their budget constraints and preferences. This point of tangency represents the optimal combination of goods or services that maximizes satisfaction or utility for the spender. Moreover, this tangential point is where the following conditions hold true:
- The Marginal Rate of Transformation (MRT) which is the rate at which one good can be traded for another in the market is equal to the Marginal Rate of Substitution (MRS), which is the rate at which the consumer is willing to substitute one good for another while maintaining the same level of utility.
- The ratio of the prices of goods, represented as P₁/P₂, is equal to the ratio of the marginal utilities of the goods, represented as MU₁/MU₂. This indicates that the last dollar spent on each good provides the same level of marginal utility, optimizing the allocation of the consumer's budget.
Thus, the correct answer to the question is D. All of the above, as all the conditions listed above need to be satisfied for the consumer to be in equilibrium.