Suppose, a consumer consumes two goods whose MRS = 3, if price of one good is Rs 30, what can be the price of the other good for the consumer to be in equilibrium.
(A) 10
(B) 30
(C) 60
(D) 90
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → (A) and (D) only
For a consumer to be in equilibrium:
- MRS (Marginal Rate of Substitution) = P(x)/P(y)
- P(x) = Price of Good X
- P(y) = Price of Good Y
Scenario 1:
- MRS = 3
- Price of one good (let's call it Good X) = Rs. 30
To find the price of the other good (Good Y):
- MRS = Price of Good X / Price of Good Y
- 3 = 30 / Price of Good Y
- Price of Good Y = 30 / 3
- Price of Good Y = 10
Therefore, the price of the other good for the consumer to be in equilibrium is 10.
Scenario 2:
- MRS = 3
- Price of one good (let's call it Good Y) = Rs. 30
To find the price of the other good (Good X):
- MRS = Price of Good X / Price of Good Y
- 3 = Price of Good X / 30
- Price of Good X = 30 * 3
- Price of Good X = 90
Therefore, the price of the other good for the consumer to be in equilibrium is 90.
Thus, the correct answer is option 2: Both A and D