Excluding corner solutions, in consumer equilibrium, which of the following is true?
A)The marginal rate of substitution equals the slope of the budget constraint.
B)The indifference curve is steeper than the budget constraint.
C)The consumer is minimizing utility given the constraints.
D)The consumer can improve his/her situation by consuming more of both goods.

Question

Quizplus · Accepted Answer

In consumer equilibrium, the consumer allocates their budget in such a way that the last unit of money spent on each item provides the same level of marginal utility. This means that the marginal rate of substitution (MRS) between the two goods is equal to the ratio of their prices. This ratio can be calculated by finding the slope of the budget constraint, which shows all the possible combinations of the two goods that the consumer can purchase given their budget. Therefore, choice A is correct. Choice B is incorrect because the slope of the budget constraint represents the ratio of the prices of the two goods, which is less steep than the slope of the indifference curve. Choice C is not necessarily true, as the consumer may not have perfect information or may not be aware of all the available options. Choice D is incorrect because the consumer is already at equilibrium, so any change in their consumption pattern would move them away from that point, reducing their utility.

Excluding Corner Solutions, in Consumer Equilibrium, Which of the Following