At the point of tangency of an indifference curve with a budget line: A)MRSxy =Px/Py B)MRSxyPx/PY C)MRSxy

Question

At the point of tangency of an indifference curve with a budget line:
A)MRSxy =Px/Py
B)MRSxy>Px/PY
C)MRSxy<Px/PY
D)MRSxy?Px/PY

Quizplus · Accepted Answer

At the point of tangency of an indifference curve with a budget line, the marginal rate of substitution (MRS) between two goods (x and y) is equal to the ratio of their prices (Px/Py). This condition ensures that the consumer is maximizing utility given their budget constraint.

At the Point of Tangency of an Indifference Curve with a Budget