76 257
Assignments Done
Successfully Done
In May 2019

Answer to Question #71317 in Macroeconomics for Akash Powhari

Question #71317
consumer consumes only two goods for the consumer to be in equilibrium. why must rate of substitution (MRS) between the two goods must be equal to the ratio on prices of these two goods. IS it enough to ensure the equilibrium?
Expert's answer
Marginal rate of substitution of good or service Y for good or service X (MRSxy) is also equivalent to the marginal utility of X over the marginal utility of Y: MRSxy = MUx/MUy.
Therefore, when the consumer is choosing his utility maximized market basket on his budget line, MUx/MUy = Px/Py.
So, consumer's utility is maximized, when MRSxy = Px/Py.

Need a fast expert's response?

Submit order

and get a quick answer at the best price

for any assignment or question with DETAILED EXPLANATIONS!


No comments. Be first!

Leave a comment

Ask Your question

Privacy policy Terms and Conditions