Microeconomics: Theory of Consumer Behaviour · Class 11 · CBSE · Commerce Economics
For an interior consumer equilibrium under the indifference curve approach, which condition must hold, assuming the indifference curve is convex to t…
Practice question from Microeconomics: Theory of Consumer Behaviour (Class 11 · CBSE · Commerce Economics), with the correct answer and a step-by-step solution.
hard · MCQ · Q-610512
For an interior consumer equilibrium under the indifference curve approach, which condition must hold, assuming the indifference curve is convex to the origin?
- A.MRS of X for Y is greater than the price ratio Px/Py
- B.MRS of X for Y is less than the price ratio Px/Py
- C.MRS of X for Y equals the price ratio Px/PyCorrect answer
- D.The consumer must consume equal quantities of X and Y
Solution
At an interior equilibrium, the indifference curve is tangent to the budget line. Therefore, the consumer's MRS of X for Y equals the market price ratio, .
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