A consumer chooses an optimal consumption point where the
A)marginal rate of substitution equals 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.

Question

Quizplus · Accepted Answer

All of the options are correct statements about the optimal consumption point. The consumer chooses such a point where the marginal rate of substitution (MRS) equals the relative price ratio, i.e., where the consumer is willing to substitute one good for the other as much as the price ratio permits. The slope of the indifference curve (IC) represents the MRS, and the slope of the budget constraint (BC) represents the relative price ratio. At the optimal consumption point, the consumer's preferences are such that the ratio of the marginal utilities (MU) of the two goods consumed is equal to their prices. If any of these conditions were not satisfied, the consumer could improve their welfare by adjusting their consumption bundle. Therefore, all three conditions must be met to reach the optimal consumption point.

A Consumer Chooses an Optimal Consumption Point Where the