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 exceeds the slope of the budget constraint.
C)ratios of all the marginal utilities are equal.
D)All of the above are correct.

Question

Quizplus · Accepted Answer

The consumer chooses the optimal consumption point where the marginal rate of substitution (MRS) equals the relative price ratio (Px/Py). At this point, the consumer is getting the most satisfaction possible given the prices of the goods. The slope of the indifference curve and the budget constraint do play a role in determining the optimal consumption point, but only when they are equal to each other (i.e., when the MRS equals the price ratio). The ratios of marginal utilities being equal is not necessary for determining the optimal consumption point.

A Consumer Chooses an Optimal Consumption Point Where the