A consumer is indifferent among the bundles (2 bananas, 16 mangoes), (3, 12), (4, 9) and (5, 7). A banana costs Rs 6 and a mango Rs 2. Along which move does her MRS equal the price ratio of the two goods?
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → From (3, 12) to (4, 9)
Given:
Bundles on one indifference curve: (2, 16), (3, 12), (4, 9), (5, 7)
Price of a banana = Rs 6, price of a mango = Rs 2
The MRS is the number of mangoes she gives up for one more banana. The price ratio p1/p2 is the number of mangoes the market asks for one banana.
Price ratio = 6 / 2 = 3
(2, 16) to (3, 12): MRS = 16 − 12 = 4
(3, 12) to (4, 9): MRS = 12 − 9 = 3
(4, 9) to (5, 7): MRS = 9 − 7 = 2
(2, 16) to (4, 9): MRS = 7 mangoes for 2 bananas = 3.5
Only the move from (3, 12) to (4, 9) gives an MRS equal to the price ratio.
NCERT (2026-27): “2.1.2 Ordinal Utility Analysis … The amount of mangoes that the consumer has to forego, in order to get an additional banana, her total utility level being the same, is called marginal rate of substitution (MRS). In other words, MRS is simply the rate at which the consumer will substitute bananas for mangoes, so that her total utility remains constant. …” “Equality of the Marginal Rate of Substitution and the Ratio of the Prices The optimum bundle of the consumer is located at the point where the budget line is tangent to one of the indifference curves. If the budget line is tangent to an indifference curve at a point, the absolute value of the slope of the indifference curve (MRS) and that of the budget line (price ratio) are same at that point. …” |