CUET Preparation Today
Read the passage carefully and answer the questions based on the passage: 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 and that of the budget line are the same at that point. The slope of the indifference curve is the rate at which the consumer is willing to substitute one good for the other. The slope of the budget line is the rate at which the consumer is able to substitute one good for the other in the market. At the optimum, the two rates should be the same. To see why, consider a point where this is not so. Suppose the marginal rate of substitution at such a point is 2 and suppose the two goods have the same price. At this point, the consumer is willing to give up 2 mangoes if she is given an extra banana. But in the market, she can buy an extra banana if she gives up just 1 mango. Therefore, if she buys an extra banana, she can have more of both the goods compared to the bundle represented by the point, and hence, move to a preferred bundle. Thus, a point at which the MRS is greater, the price ratio cannot be the optimum. A similar argument holds for any point at which the MRS is less than the price ratio. |
The exceptional case in optimal choice of the consumer is where ............... |
One good is more preferred than another. Entire income is spent on one of the goods only. Partial spending of income on both goods. Both goods are preferred in same quantity. |
Entire income is spent on one of the goods only. |
The correct answer is Option (2) → Entire income is spent on one of the goods only. The optimal consumer choice is where the consumer chooses a combination of goods that maximizes their utility given their budget constraint. This is represented by the point where an indifference curve (representing different levels of utility) is tangent to the budget line. However, if a consumer has such a strong preference for one good that they are willing to spend their entire income on it, they will not reach a point of tangency. Instead, they will consume only that one good, regardless of its price. This is considered an exception because it deviates from the typical optimal choice scenario where the consumer allocates their income across both goods according to their relative preferences and prices. Why other options are incorrect:
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