If the slope of the indifference curve is steeper than the slope of the budget line,and X is on the horizontal axis: A) the consumer is willing to give up more of good Y to get an additional unit of good X than is necessary under the current market prices. B) MRS

Question

If the slope of the indifference curve is steeper than the slope of the budget line,and X is on the horizontal axis: A) the consumer is willing to give up more of good Y to get an additional unit of good X than is necessary under the current market prices. B) MRS < P_X /P_Y. C) MRS < −P_X /P_Y. D) the consumer is willing to give up more of good X to get an additional unit of good Y than is necessary under the current market prices.

Quizplus · Accepted Answer

If the slope of the indifference curve (MRS) is steeper (i.e. greater) than the slope of the budget line, it means that the consumer is willing to give up more of good Y to get an additional unit of good X than is necessary under the current market prices. This implies that the consumer is not yet maximizing utility and can still increase satisfaction by consuming more of X and less of Y. Therefore, the optimal choice would be to increase consumption of X until the MRS equals the price ratio (i.e. slope of the budget line).

If the Slope of the Indifference Curve Is Steeper Than